KARACHI: The decision by the Ministry of National Food Security and Research to eliminate the subsidy on fertilizer will increase the prices and depress the demand up to 10 percent.
The federal government, regarding the fertilizer subsidy scheme 2016-17 had announced a subsidy of Rs27 billion to support the end-users.
According to analysts, in case of a cash subsidy reversal, which was Rs156 per bag for urea, the pass on of the same to farmers will have marginal impact on urea demand. However, if the subsidized GST rate of 5 percent is reversed to an earlier rate of 17 percent, then that would have a Rs390/bag pass on effect on urea prices. The latter case can impact urea demand negatively by 5 to 10 percent.
Imported urea won't be a threat for now as international urea's landed prices are on a rising trend and comes to around Rs 1,920/bag, as per our calculations. However, any decline in international urea prices will likely have a negative impact on local producers, said analysts at Topline Securities.