FFBL AND ENGRO WILL BE GREATER BENEFICIARY BY BUDGET MEASURES

FFBL AND ENGRO WILL BE GREATER BENEFICIARY BY BUDGET MEASURES

Budget 2008-09 Impact on fertilizer sector

Important budgetary measures for the fertilizer sector in Budget 2008-09 are as follows:

1) Govt has decided to increase the subsidy on DAP fertilizer by Rs530 per bag or 112.8% to Rs1,000 per bag from the existing Rs470 per bag in view of steep increase in its international prices. Subsidy on other fertilizers will also continue.

A) FFBL, being the sole producer of DAP; will be the main beneficiary as increased raw material cost would be mitigated by the increased subsidy, which will help the company to maintain its margin.


B) ENGRO (DAP) Importer is also likely to have a positive impact on its bottom line in the shape of inventory gains.

2) The government has also increased the total allocation for fertilizer subsidy by Rs10b or 40% to Rs35b for the next fiscal year from Rs25b allocated for the outgoing fiscal year. It is expected to have a positive impact on the sector because these subsidies will pass on to the farmers in the shape of cheap fertilizer, which will further improve the fertilizer offtakes figures.



3) The government will provide additional Rs30b credit to agricultural sector in addition to total credit to agricultural sector amounting to Rs130b disbursed this year. An increase in agricultural credit target will benefit the farmers in terms of more liquidity and will likely to have a positive impact on the fertilizer sector.


4) General Sales Tax (GST) on imported and local supply of fertilizer and pesticides
has been reduced to 0% from existing 15%. It will have a positive impact on the sector as it is likely to act as another trigger for fertilizer sales because now farmers can get fertilizer and pesticide at cheaper rates. Exemption of sales tax will reduce the urea and DAP prices by Rs49.95 per bag and Rs34.5 per bag respectively.


5) The government has also proposed to waive the levy of 5.0% FED on premium
of crop insurance policy. This step is also to encourage crop insurance in the country.

6)The GoP has increased the wheat support price to Rs625 per maund from earlier Rs510 per maund. In Budget 2008-09, government has mentioned that further upward revision of wheat support price is also expected for the next year’s wheat crop in Aug-Sep keeping in view the higher input cost and escalating international prices. It will improve the farmer’s purchasing power, hence potentially boosting fertilizer offtake.