Smuggling of Urea

Although there is hardly any country around the globe which is immune to crises, Pakistan holds a unique place in a sense that the country perpetually remains in the throes of crises. As the new year began, people found themselves queuing up for flour and sugar, while their brethren in the farming community stood in long lines and jostled to procure fertiliser for the wheat crop.

The urea fertiliser crisis is in full swing at a time when it is needed the most. The production of the chemical peaked at an all-time high of 6.3 million tonnes in 2021 thanks to the uninterrupted gas supplies to the urea plants last year on revised government policy. This compared with an annual average demand of around six million tonnes for the last three years.

But why are farmers facing shortages? The growth in demand and hoarding for profit may be a factor. Yet the main reason for its unavailability is believed to be the smuggling of urea out of the country owing to the enormous price differential in local and international markets.

A report quoting anonymous official sources has suggested that the government was puzzled over at least 343,000 tonnes of ‘missing’ urea, which is presumed to have been illegally dispatched to Afghanistan.

Historically, locally produced urea is sold at substantially discounted prices in comparison to international urea because of the gas subsidy for manufacturers. That difference has now gone up and is an added incentive for urea’s illegal trade. The scarcity created thus afforded urea traders here to hoard the chemical and charge premium from the farmers.

The wheat farmers have been facing urea shortages since sowing began and paying a hefty premium of up to Rs1,000 per 50kg bag over and above the officially fixed rate of Rs1,750. With fertiliser being sold at much higher prices, small farmers tend to stay away from the crop as wheat is no more considered a profitable option. The situation is bound to lead to a wheat crisis of unprecedented proportions in the days ahead.

It was in October when the government decided to import 100,000 tonnes of urea. No one responded to the tenders. Later, it turned to China, the largest exporter of urea, to import the chemical on a government-to-government level at a discounted price of $600 per tonne to ease pressure on the market.

The first shipment of 50,000 tonnes is expected to arrive next month, when, in the words of the ministers and industry, Pakistan would have a surplus of 4.4 million tonnes next month and 8.2 million tonnes in March. The government has also asked the manufacturers to increase their daily supply in the market by 50,000 bags to 450,000 bags for managing the current demand.

While imports may assist the government in overcoming the crisis, the industry rightly says the long-term solution to the issue lies in reducing the gap between domestic and international prices. The government must intervene and spring the administration into action, otherwise the unavailability of fertiliser at this juncture would land the country into yet another flour crisis.