ABSTRACT

This report provide overview of the information on the Pakistan fertilizer situation from 1990-91 to 2008-09. Pakistan rank 46th in the world in terms of fertilizer consumption and its fertilizer usage per hector is 115kgs.This study has been conducted to find out the factors which have been affecting demand for fertilizer as specified equations for nitrogen, phosphorus and potash, are estimated by using the static models. The results are acceptable from both an economic and statistical point of view. Using a linear regression analysis the result indicated that the demand function equation i.e. Y = 2.9723 + 0.0597 (x) can forecast the future demand of the fertilizer.

Key Words: Demand; Fertilizer; Pakistan; Regression Analysis; demand function equation; future demand of fertilizer.

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INTRODUCTION

Fertilizers constitute a key component of the modern farm technology for achieving increased production through improving soil fertility. In this modern agricultural era, fertilizer is basic important input to boost yield. Contribution of balanced fertilization towards increased yield is from 30 to 60 percent in different crop production regions of the country. One kg of fertilizer nutrient produces about 8 kg of cereals (wheat, maize and rice), 2.5 kg of cotton and 114 kg of stripped sugarcane. All of our soils are deficient in nitrogen (N), 80-90 percent are deficient in phosphorus (P) and 30 percent in potassium (K), Wide spread deficiency of micronutrients are also appearing in different areas. Soil fertility is continuously depleting due to mining of the essential plant nutrients from the soils under intensive cultivation. The introduction of the high yielding cereal varieties in 1966-67 having higher nutrient requirements, ushered in the ‘fertilizer era’ in Pakistan and set the stage for ‘green revolution’. Prior to this, the use of fertilizer was nominal (NFDC, 1996). Application of commercial fertilizers in Pakistan began in 1952-53, and the off-take was only 1,000 nutrient tonnes of nitrogen. Phosphorus was introduced to farmers in 1959-60 with an initial usage of 100 nutrient tonnes. Potash fertilizer off-take started in 1966-67 with a volume of 120 nutrient tonnes. These trends in fertilizer usage emphasized the importance and role of fertilizer in the economy of Pakistan. There has been a continuous rise in the consumption of fertilizers. During the year2000-01 total fertilizer sales were 2966,000 nutrients tonnes, augmented by 851 percent from 312,000 nutrient tonnes sold in 1969-70 (appendix 1) The major increase was for nitrogen, which increased by 822 percent, i.e. from 274,000 nutrients tonnes to 2526 (000) nutrient tonnes. Nitrogenous fertilizers now account for 78 percent of commercial fertilizer off-take in Pakistan with phosphorous and potash accounting for 21 and about 0.7 percent, respectively.Analysis of fertilizer demand on type basis may help to take proper decisions regarding their distribution. This paper is an attempt to alleviate this situation by presenting the empirical results of the combined demand for Fertilizer.

FERTILIZER DEMAND

The demand for input is a derived demand and it is determined by the underlying demand for the final product being produced by the technical characteristics of the production function. Fertilizer is one of the inputs used in crop production. Pakistan is internationally recognized as an agrarian economy, providing employment to an over-whelming 44.7% of the population and contributing about 21.8% to the country’s GDP. This heavy reliance on agriculture has led to various policies directed to ensure food security, fuel the textile sector, lower unemployment rate and provide for growth in the GDP. These policies along with their ramification have led both directly and indirectly to growth in the fertilizer demand for Pakistan.

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Exhibit 1 Demand Date

Fertilizer demand in 000N/TonnesFiscal year

N P K Total Total in million N/Tonnes

1999-00 2217.80 597.16 18.50 2,833.50 2.8332000-01 2264.49 672.73 22.75 2,966.03 2.9662001-02 2285.30 624.54 18.75 2,928.60 2.9282002-03 2349.11 650.17 20.49 3,019.76 3.0192003-04 2526.73 673.46 21.79 3,221.98 3.2212004-05 2796.42 865.11 32.51 3,694.04 3.6942005-06 2926.62 850.53 27.04 3,804.19 3.8042006-07 2650.00 979.00 43.01 3,672.00 3.6722007-08 2924.60 629.70 26.90 3,581.20 3.5812008-09 2205.00 452.00 23.00 2,691.00 2.691

N; Nitrogen P; Phosphorus K; Potash

Source: 1. Federal Bureau of Statistics. 2. National Fertilizer Development Centre

METHODOLOGY

THEORETICAL FRAMEWORK

Demand is defined as the quantity of a commodity that buyers are willing and able to buy at a specified price in a given market and at a particular time. This demand is termed “effective” as it is backed by the ability to pay for such goods. Therefore individuals (consumers) are prepared to pay for goods and services, because of their values.

The purpose of this paper is to estimate demand function from Trend Projection Method. Project the future demand by using the current and past demand situation. In this regard, a demand functions is estimated for nitrogen (N), phosphorus (P) and potash (K). The analysis is based on time series data from 1990-00 to 2008-09. The sources of the data for this study are Economic Survey (various issues) and Fifty Years of Pakistan in Statistics as well as National Fertilizer Development Center (NFDC) reports.

TIME SERIES ANALYSIS

A commonly used method of forecasting is the analysis of historical data to discern the trend in demand growth and extend it into the future to forecast demand. Although this method calls for application of statistical techniques it is useful to know its features in a simplified form. 1990-91 to 2008-09 data of fertilizer demand is available and the trend is relatively stable, it is possible to read from past data the current "speed" of demand growth and the extent to which the speed is increasing or decreasing.

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Pakistan used to rely upon expert judgment. However, with accumulation of valuable data of past consumption the country has now found demand projections based on time trends to have a far greater degree of accuracy than the multiple regression approach. This model is yielding good results. The overall N, P & K forecast is made.

Exhibit 2 Change in Time Axis

Actual Year Year of Analysis1999-00 02000-01 12001-02 22002-03 32003-04 42004-05 52005-06 62006-07 72007-08 82008-09 9

FORMULAb = TY-n(T)(Y) T2-n(T)2

CALCULATIONS

The demand for inputs such as fertilizer is usually a derived demand. Thus the demand for fertilizer can be derived from a given aggregate production function for the agricultural commodities. In economic theory, the utilization of any input like fertilizer depends upon the profit maximization conditions and the production, i.e. technology adoption.

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Exhibit 3 Calculations in the Least Square Method

T Y TY T2

0 2.833 0 01 2.966 2.966 12 2.928 5.964 43 3.019 9.057 94 3.221 12.884 165 3.694 18.470 256 3.804 22.824 367 3.672 25.704 498 3.581 28.648 649 2.691 24.219 81

T=45 Y=32.409 TY=150.628 T2=285

T=4.5 Y=3.2409

b = TY-n(T)(Y) T2-n(T)2

b =150.628-10(4.50)(3.2409) 285-10(4.52)b =150.628-145.8405 285-202.5

b = 4.7875 82.5

b = 0.0580

a = Y- b T

a = 3.2409 - 0.0580(4.5)

a = 3.2409 - 0.261

a =2.9799

Where

T = timeY = demandn = number of observation

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T = mean of TY = mean of Ya = interceptb = slope

DEMAND FORECASTING EQUATION

Y = a + b (x)

Y = 2.9723 + 0.0597 (x)

This equation shows the demand function of fertilizer. By using this equation we can calculate future demand of fertilizer. Thus the demands for Nitrogenous fertilizer (N), Phosphorus fertilizer (P2O5) and Potash fertilizer (K2O) can be estimated from this equation.

Exhibit 4 Least Square Fitting

Least Square Fitting

0

0.5

1

1.5

2

2.5

3

3.5

4

0 1 2 3 4 5 6 7 8 9

Time

De

ma

nd

(in

mill

ion

to

ns

)

Y

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CONCLUSION

This report represents Pakistan nitrogen, phosphorus and potassium fertilizer demand projection from 1990-91 to 2008-09. Fertilizer is one of the key inputs to agricultural production. Balanced usage of fertilizer helps in increasing crop yield from 30 to 60 percent in different regions of the country. Almost the entire available soil in the country is nutrient deficient. To overcome the problem of nutrient deficiency, use of nutrient fertilizer has become vital for achieving the higher agricultural production. However, the main impediment in exploring the full potential of the soil has remained below par due to imbalances in fertilizer usage especially, in terms of over application of nitrogenous fertilizer compared to phosphoric fertilizer.

In the study, attempts have been made to estimate fertilizer demand function. Estimation was completed for N, P, and K. The estimated demand equation is of general agreement as the signs of the estimated coefficient are in accordance with prior expectation. All the coefficients are statistically different from zero and the results are consistent with the theory. The parameters and related statistical test results obtained from the regression analysis are provided. The linear functional form was chosen as the lead equation for this analysis. The regression estimate of the determinants of fertilizer demand in Pakistan during the 1990-91 to 2008-09 is shown on Exhibit 1. The estimated fertilizer demand function for Pakistan in its linear form for the 1990-91 to 2008-09 is expressed as follows:

Y = 2.9723 + 0.0597 (x)

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REFERENCES

Chaudhry, M. Ghaffar and M. Anwar Javed (1976), Demand for nitrogen fertilizers and fertilizer price policy in Pakistan. The Pakistan Development Review, Volume XV, No. 1(spring), pp. 1-9

Dilawar A. Khan and M. Ashiq (1981), the Demand for Fertilizer inPakistan. Punjab Economic Research Institute, Lahore.

Government of Pakistan, Fifty Years of Pakistan in Statistics 1947-97.Central Statistics office, Economic Affairs Division, 1997

Government of Pakistan, Pakistan Economic Survey, Various issues, Economic Advisor’s Wing, Finance Division, Islamabad.

Salam, Abdul (1977), Economic analysis of fertilizer demand in the Punjab.Pakistan Development Review, Volume 16(2), pp. 181-191.

Saleem, M. T. (1990), Fertilizer demand forecasting: Short and medium term. Pakistan Journal of Agricultural Social Sciences, Volume 5(1), pp. 34-55.

Pakistan Economic and Social Review, Volume 46, No. 2 (Winter 2008), pp. 101-116

Fertilizers and Their Use in Pakistan, NFDC Publication, 3/96.

Economic Survey of Pakistan, 2004-05.

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APPENDIX

APPENDIX 1

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APPENDIX 2

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