Urea price hiked by Tk6 a kg – at a wrong time?

Infographic: TBS

The government has raised the price of urea fertiliser by Tk6 to Tk22 a kilogram for farmers in view of its global price hike, causing concerns about the impact of additional production costs on overall rice output at a time when soaring food prices have put global food security at stake.

At the dealer level, the rate has been fixed at Tk20 per kg, which was Tk14 previously.

The Ministry of Agriculture announced the new prices through a notice published on Monday with immediate effect.

Urea price was last readjusted at Tk16 per kg in August 2013, down from Tk20 when both global fertiliser price and gas supply to local fertiliser factories were stable.

The price of the key agricultural input was lowered to cut crop production costs and ensure food security, the then agriculture minister Matia Chowdhury had said.

Earlier in 2011, urea price was raised to Tk20 from Tk12 per kg in response to a global price hike to Tk35,000 per tonne from around Tk20,000.

Urea price in the international market fell from its post-Russia-Ukraine war peak of $950 per tonne and stands at around $560 – equivalent to about Tk53,200 as per the latest exchange rate.

The current price of 1kg of urea on the international market is Tk81. Hence, despite raising the retail price by Tk6, the government still has to pay Tk59 in subsidy per kg of the product.

In the fiscal 2005-06, the government had to pay a subsidy of only Tk15 per kg.

The latest price hike came just five days after Agriculture Minister Abdur Razzaque had said the government would procure fertiliser even if it becomes costlier in the global market to make sure farmers face no shortage of the agriculture input. 

Agricultural economist Dr Md Jahangir Alam told The Business Standard that hiking fertiliser prices at the very beginning of the Aman season is not logical at all. 

"If you think about increasing production amid the global food crisis, you have to ensure an adequate supply of fertilisers. If prices increase, many farmers will use less fertiliser to minimise production costs. This may affect the yield," he observed.

He stressed that the government should give importance to imports by any means without increasing prices.

An agriculture ministry press release issued yesterday says there is sufficient stock of all kinds of fertilisers in the country.

Local factories once catered for 80% of the domestic demand for urea, which has now shrunk to less than 40%, Jahangir Alam mentioned, adding that the country now should focus on attaining self-sufficiency in urea production.

Abdul Malek, a farmer from Kaharole upazila in Dinajpur, has transplanted Aman seedlings on 1 acre of land. He will apply urea to the land at least twice – about 50 kgs on each occasion.

Because of a shortage in supply of the fertiliser, farmers in their locality are having to buy each 50-kg bag of urea for Tk850-900, Tk50-100 higher than the current government-fixed rate, he said, adding that once the new rate takes effect, the price of each bag will jump to Tk1,100.  

But, if there is a crisis in supply, the price may go up further, he feared.

Economist Dr Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh, however, suggested that some increase in fertiliser prices could be a partial solution to farm subsidy burden.

"We are still selling them at the rate we used to sell them at when the dollar prices were much lower," he told TBS last week, as he felt too cheap fertiliser might encourage waste and smuggling of the expensive farm input out of the country.

The demand for urea this year has been estimated at 26 lakh tonnes. Of the demand, 10.5 lakh tonnes will be produced in the country's four fertiliser plants, and the rest will be imported.

The agriculture minister on 20 July said his ministry was trying to find alternative sources from where the much-needed urea could be purchased.

The current agriculture-friendly government under the leadership of Prime Minister Sheikh Hasina has reduced the price of fertilisers four times since 2009, and is delivering sufficient fertilisers to the doorsteps of farmers at very low prices.

Because di-ammonium phosphate (DAP) fertiliser contains 18% nitrogen or the main ingredient of urea fertiliser, the government reduced the DAP price from Tk90 to Tk16 per kg with a view to reducing the unnecessary and excessive use of urea by increasing the use of DAP.

As a result of this initiative, the use of DAP fertiliser has doubled to 16 lakh tonnes from 8 lakh tonnes in 2019.

But the use of urea has not decreased. In fact, its use has increased. In 2019, about 25 lakh tonnes of urea were used, and the demand has been estimated at 26.50 lakh tonnes for this year.

Meanwhile, fertiliser prices have increased by about 3-4 times in the international market over the last one year. As a result, government subsidies on fertilisers also have seen almost a four-fold hike.

In the fiscal 2020-21, the government provided Tk7,717 crore in subsidies on urea fertiliser, and the figure climbed to Tk28,000 crore in the following year.
 
Fertiliser stock

The demand for urea in the country during the Aman season (July-September) is 6.19 lakh tonnes, it says, adding that right now the country has a stock of 7.27 lakh tonnes of the item.

For the Aman season, 3.9 lakh tonnes of triple superphosphate (TSP) are in stock against a demand of 1.19 lakh tonnes.

On the other hand, the country has 6.34 lakh tonnes of DAP and 2.1 lakh of muriate of potash (MOP) fertilisers in stock, while the demand is 2.25 lakh tonnes, and 1.37 lakh tonnes, respectively.

The agriculture ministry determines the demand for fertilisers in the country. In addition to the annual demand, the government used to keep seven lakh tonnes of urea as buffer stock every year, which has been increased to eight lakh tonnes this year. A buffer stock scheme is a government plan to stabilise prices in volatile markets.

The 7.27 lakh tonnes of the present stock of urea fertiliser that the agriculture ministry is talking about is basically buffer stock. And the government will have to distribute fertiliser from this stock this Aman season as it does not have any other stock of the fertiliser.   

Md Sayedul Islam, ‍secretary to the agriculture ministry, also acknowledged this fact. He, however, reassured the people that there will be no crisis of urea in the future as some shipments of it are in the pipeline.

Sources at the agriculture and industries ministries said about 2.5 lakh tonnes of urea fertiliser will arrive in the country this month.
 
New fertiliser factory project gains pace

The latest volatility in the global fertiliser market has prompted the government to accelerate earlier initiatives to increase domestic production as it found local production more reliable and cost-effective.

Although the cost of production at local factories has increased, the hike is much less compared to the increase in import costs. At present, the production cost of one kilogram of urea fertiliser is Tk19-20, while the import cost per kg is Tk56-57.

The industries ministry thinks that once the Ghorashal Polash urea Fertiliser factory goes into production, the import dependency on urea fertiliser will decrease to 24% from 59.61%. Thus, a huge amount of money will be saved which would otherwise be spent on imports.

Sources at the industries ministry and the Bangladesh Chemical Industries Corporation (BCIC) said Bangladesh currently imports 15.5 lakh tonnes of urea fertiliser annually against a demand of 26 lakh tonnes.

At the current international market rate, the government has to spend Tk9,000 crore on urea fertiliser imports, they added.

The Polash urea factory, being constructed at a cost of Tk10,460 crore, is scheduled to start production in December next year. The environment-friendly plant has a daily production capacity of 2,800 tonnes. Once this factory goes into production, the annual domestic production of urea fertiliser will stand at 19.75 lakh tonnes.

At present, the four existing fertiliser factories in the country have a cumulative capacity to produce 10.5 lakh tonnes of urea fertiliser a year, which is 40.39% of the total local demand.

Meanwhile, the Polash factory project steering committee has already started working to ensure gas supply as part of the government's plan to launch the plant by December next.

At the 10th meeting of the steering committee held recently, Zakia Sultana, secretary to the industries ministry, stressed the need for ensuring the availability of gas at the plant so that it can go into production soon after the completion of the construction work.

The additional secretary (planning) to the industries ministry, and the project director of the fertiliser factory project were assigned the responsibility to maintain necessary communication with the managing director of Titas Gas to ensure the availability of gas at the plant.

According to the proceedings of the steering committee meeting, this state-of-the-art factory is fuel efficient and environment-friendly, with no pollutants emitted to the environment. It will increase production by 10% by capturing and recycling carbon dioxide, which pollutes the environment.

As of May this year, the project has achieved 67% progress.
 
Gas shortages a matter of concern

According to BCIC sources, at present four fertiliser manufacturing plants are running in the country, but production at two of them – Jamuna Fertiliser Company Ltd, and Chattogram urea Fertiliser Ltd – have recently been suspended indefinitely because of gas shortages.

Apart from gas supply problems, frequent shutdowns due to age-old machinery and frequent technical glitches have already reduced the combined output of these factories to less than half to 10.5 lakh tonnes a year from 22.31 lakh tonnes.

The regulatory bodies, however, are trying to make sure the gas supply is restored quickly as a longstanding closure of the fertiliser factories may lead the country's agricultural production to a crisis besides raising import costs, the sources claimed.

A senior official of the BCIC on condition of anonymity told TBS, "If we can keep the factories running for 10 months, it is possible to exceed our fertiliser production target."

Discussions are going on at the highest level of the government regarding the speedy opening of the two factories that have been closed due to gas shortages, said the official.