The federal government has recently introduced a federal excise duty on the fertilizer sector as part of Budget 2023-24. The move aims to secure an International Monetary Fund (IMF) tranche, but it comes with potential consequences for farmers and the national food security. Experts express concerns about the impact of this duty, considering the already high prices of urea and DAP fertilizers in the market.
Impact on Fertilizer Prices:
According to Tahir Abbas, Head of Research at Arif Habib Limited, the federal excise duty will be transferred to the end consumer, resulting in a significant price increase.
Urea prices, which are already above their notified rate, may see an additional impact of Rs. 150 to Rs. 475 per bag. DAP prices, already at historic high levels, are expected to face further pressure due to this duty.
Reduced Affordability and Farmer Livelihood
Farmers heavily rely on fertilizers like DAP for optimal crop productivity. Unfortunately, the affordability of DAP has decreased over the past two years, leading to a significant decline in consumption.
The expected price hike due to the excise duty is likely to worsen the situation, making fertilizers unaffordable for farmers. This poses a threat to their livelihoods and has the potential to decrease national food security.
Challenges in Urea Production and Import Dependence
Although Pakistan is considered self-sufficient in Urea production, shortages can occur during gas scarcity in winter months. During such times, the country resorts to imports, which are often subsidized.
Additionally, imported RLNG (Regasified Liquefied Natural Gas) is supplied to certain production plants. On the other hand, DAP is predominantly imported, with limited local production capacity and low-quality local phosphate reserves.
Government’s Revenue Collection Efforts
The government aims to generate Rs. 95 billion in revenue by imposing sales tax on fertilizers and other agricultural inputs.
This move is part of a broader effort to meet revenue targets and secure an agreement with the IMF. However, the response from the IMF is still pending, and Pakistan’s absence from the IMF agenda raises concerns about the effectiveness of these measures.
Concerns Raised by Farmer Associations
The All Pakistan Kissan Itthehad (APKI), a farmers’ organization, has expressed objections to the expected price hike. Fertilizer usage is crucial for the productivity of major crops like cotton, wheat, rice, sugarcane, and maize.
The APKI predicts a potential loss of Rs. 260 billion to the GDP if farmers are forced to reduce fertilizer usage, leading to a five percent decline in crop productivity.
Conclusion:
The imposition of federal excise duty on the fertilizer sector has raised concerns about the affordability of fertilizers, especially urea and DAP. The anticipated price hikes may negatively impact farmers, jeopardizing their livelihoods and national food security.
It remains to be seen how the government’s revenue collection efforts and engagement with the IMF will unfold in the coming months, as they play a significant role in determining the future of the fertilizer sector and its impact on the agricultural landscape.
