Billions of Rupees Subsidy in Fertilizer – not Passed on to Farmers
Newztodays Team
An inquiry conducted by the Competition Commission of Pakistan (CCP) has shed light on the profitability, cost structures, subsidies, and their impact on urea prices for farmers. The investigation has raised key questions regarding the pricing strategies employed by urea manufacturers.
The committee has recommended proceedings against leading fertilizer manufacturers. They included Fatima Fertilizer Company Limited, Fatima Fert Limited, Engro Fertilizers Limited, Fauji Fertilizer Company Limited, Agritech Limited and, Fertilizers Manufacturers of Pakistan Advisory Council, Fauji Fertilizer Bin Qasim Limited.
The cost structure analysis revealed that the main raw material for urea production, feed gas, varies in price for each manufacturing unit. Despite these differences in costs, urea producers have maintained identical prices, prompting CCP to question the pricing mechanisms in place.CCP issues Show Cause Notices to Fertilizer Firms
The fertilizer industry’s total annual gas consumption stands at 266,796 MMCF, with 83% utilized as feedstock and the remaining 17% as fuelstock. Subsidies on feedstock gas amount to approximately Rs. 152 billion annually, aimed at ensuring affordable urea prices for farmers. However, despite these subsidies, urea prices continue to rise, resulting in significant profits for producers.
In 2021, Fauji Fertilizer Company (FFC) reported a Gross Profit margin of 35.78%, Net profit margin of 20.15%, and a return on equity (ROE) of 46.08%. Similarly, Engro Fertilizers recorded a Gross Profit margin of 33.3%, Net profit margin of 15.9%, and an ROE of 44.97%. These ROE figures are notably higher compared to the Indian urea industry, where the ROE is capped at 20%.
A concerning trend of uniform pricing was also observed, with all urea manufacturers in Layyah district increasing prices by Rs. 482/bag (or 27.26%) between February 2022 and November 2022. Price adjustments, both increases, and decreases, were made simultaneously by all companies, indicating a coordinated pricing strategy.
In response to these findings, CCP has issued Show Cause Notices to urea producers, demanding an explanation for what appears to be a coordinated price fixation. The investigation underscores the importance of ensuring fair competition and protecting consumer interests in the fertilizer industry.
