Fertilizer - Budgetary Steps

Fertilizer - Budgetary Steps

Relief to the agriculture sector

The following measures have been taken to ensure relief and motivation to the farmer as well as incentives to the agriculture sector:

a) Increase of support price of wheat from Rs 510 to Rs 625 per 40 KG.
b) Review of the support price for the next year's wheat crop in August September i.e. before the next sowing season keeping in view the input cost and prevailing international prices.
c) Provision of Rs 75 billion in the PSDP to improve the availability and efficient use of water resources through construction of dams, rehabilitation of irrigation, improve drainage system, lining of canals and water courses throughout the country.
d) To ensure that agriculture produce retains it value and quality and to facilitate its export. Cold chains will be set up in the country.
e) Arrangements for import of bulldozers through foreign collaboration to increase and improve the cultivable area.

Subsidy on DAP

The subsidy for the fertilizer sector has been enhanced to PKR32bn against PKR25bn in Budget FY08 attributable primarily to the phenomenal rise in global fertilizer prices, especially phosphates. The government has raised the DAP subsidy from the previous level of PKR470/bag to PKR1,000/bag.

Agri-Credit

Budget FY09 has remained focussed on the agriculture sector especially in light of spiralling food prices & supply shortages. Accordingly, the agri-credit target has been set at PKR160bn for FY09. In addition, the government is also revamping ZTBL in an attempt to broaden its outreach.

Grain handling & storage facility

Duty free import of machinery and equipment for grain handling and storage facilities to be de-linked from the conditionality of local manufacture. This will largely help in improving the grain handling and storage facilities in the country.

Crop Insurance Policy

It has also been decided to waive-off the levy of 5% Federal Excise Duty on premium of crop insurance policy.

Quality seed supply

To enhance supply of quality seed to farmers, a National Commercial Seed Production Program is being prepared. Negotiations have been started for fast track, formal release of Bt cotton varieties in Pakistan.

Exemption of sales tax on import and local supply of fertilizer

Sales tax on import and local supply of fertilizers and pesticides has been exempted. Exemption of sales tax on import and local supply of fertilizers and pesticides is aimed at providing fertilizers and pesticides at cheaper prices to the farmers.
Fertilizer
Impact - Positive
• The government had made it clear that it would realign its focus on the agricultural sector given the shortfall in the global grain market; rising pressure on the import bill from oil and spiraling food inflation. We understand that what is good for the agricultural sector would turn out to be good for fertilizer companies in terms of
stronger demand and margin outlook.

• The increase in DAP subsidy should help drive DAP sales, which in turn should help the country achieve self sufficiency in major crops particularly wheat. This should also help fuel a major DAP sales rebound and help improve pricing power for FFBL in particular; facilitate placement of fresh import orders and hence result in inventory gains on old stocks.

• The exemption from sales tax and other duties would have little impact on fertilizer price. It would, however, not help reduce fertilizer prices down to a level which could fuel its application.

• An increase in agri-credit would bode well for the fertilizer sector in terms of enhanced liquidity available to the sector and hence fertilizer companies.

• The decision to faciliate establishment of grain handling and storage facilities: crop insurance policy and ensuring availibility of quality seeds should augar well for fertilizer sector in general.