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FERTILIZER S ECTOR OF PAKISTAN Presented By: Fakhar Ud Din
Presented To: Prof. Dr. Qais Aslam
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OVERVIEW
An Economy Deriving 21.8% of Its Output from Agriculture:
As of FY09, agriculture contributed 21.8% to the overall GDP.The demand for fertilizer is directly related to agriculturegrowth.
Urea is the most used fertilizer, followed by DAP.Major Crops Production in Year 2008-09:
(mn tons) FY08 FY09 %Change
Wheat 20.9 23.4 11.7%
Rice 5.5 6.9 24.9%
Cotton(bales) 11.6 11.8 1.1%
Sugarcane 63.9 50 (21.7%)
Source: Economic Survey
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TYPES OF FERTILIZER
Eight different fertilizer products which falls into three categories.
1. Nitrogenous Category:
UreaCalcium Ammonium Nitrate (CAN)
Ammonium Sulphate (AS)2. Phosphatic Category:
Di-Ammonium Phosphate (DAP)Triple Super Phosphate (TSP)
Single Super Phosphate (SSP)Nitro Phosphate (NP)
3. Potassic Category:
Sulphate of Potash (SOP)
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SPOT A NALYSIS OF FERTILIZER SECTOR
No. of Fertilizer Manufacturers 8
Capacity Utilization 110%
Industry capacity (urea mnt) 4.3
Industry capacity (DAP mnt) 0.44
Production (1HCY09 mnt) 3.06
Imports (1HCY09 mnt) 0.66
Source of Machinery Italy, England, Denmark, U.S.A,Japan.
Plants in Pipeline 2
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BUDGET OVERVIEW REGARDING FERTILIZER Budgeted Measures
Subsidy of PKR 10bn on urea imports
Subsidy eliminated on phosphate and potash fertilizer imports
Continuation of high support crop prices
Feed gas is priced at PKR 94.7/mmbtu a 72% discount to fuel gasprice of PKR 339.4/mmbtu
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UREA M ANUFACTURING PROCESS :
Ammonia Plant Ammonia
Urea PlantProduct
Handling &Shipment
Urea
Water
Power Plant & Utilities
50 Kg UreaBag
Carbon Dioxide
POWER
STE
AM
POWE
R
STE
A
M
N ATUR
ALG
AS
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DAP M ANUFACTURING PROCESS
Ammonia Plant Ammonia
DAP PlantProduct
Handling &Shipment
DAP
Water
Power Plant & Utilities
50 Kg DAPBag
POWER
STE
AM
POWE
R
STE
A
M
N ATUR
ALG
AS
Phosphoric AcidSulphuric Acid
SandFurnace Oil
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EXCESS DEMAND S ITUATION-SELLER IS THE KING
Capacity 5.8 million tonsDemand 6.9 million tons
The heavy demand is driven by: Attractive wheat support price of Rs.950 per 40 kg.Decent Cotton & robust Wheat crops.Reduction in Urea & DAP prices.
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DEMAND DRIVERS
Low Crop Yields
Growing Population
Fertilizer Prices
Commodity Support Prices
Water Availability
According to NationMaster
Pakistan ranks 46th in the world in terms of fertilizers consumption,
where its fertilizer usage per hectare is 115 kgs.
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INTERNATIONAL VS LOCAL DAP P RICES
0
500
1000
1500
2000
2500
3000
3500
DAPUS Gulf
Local Rs/bag
Source: NFDC
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BUSINESS MODEL OF INDUSTRY
There are two types of business model operational in fertilizersector .
1. Manufacturing Model:
Two types of fertilizers are produced in Pakistan which are
Urea & DAP.2. Distribution Model:
Import fertilizer and sell them in association with the localdealer network.
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INDUSTRY STRUCTURE :
Eight fertilizer companies.
The fertilizer sector in Pakistan is overseen by the Ministry of Food,Agriculture & LiveStock.
Oligopolistic Structure
The four largest firm are price setters. However, subsidy on feedstockto firms prevent these firms from exploiting their marketing power.
Share of listed companies in Urea and DAP.
42.03%9.56%
15.39%
Urea Market Share-1HCY09
FFC
FFBL
ECPL
26.46%
58.50%
15.03%
DAP Market Share-1HCY09
Others
FFBL
ECPL
Source: NFDC
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FERTILIZER POLICY 2001
The last fertilizer policy was announced in 2001.
The Policy had been divided into two segments: 1. Providing feedstock gas to companies at subsidized rates.2. Providing feedstock gas to new plants at a fixed price of US
$0.77 per mmbtu for a period of 10 years.
Under the second segment , Engro & Fatima Fertilizer willbe rewarded with feedstock gas at US $0.77 per mmbtu for a period of 10 years from the date of commission .
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INDUSTRY PORTER S MODEL
1. Barriers to Entry: HighLimited supply of major raw material (Natural Gas)Capital Intensive nature of the industry
2. Bargaining Power of Suppliers: HighSuppliers have the bargaining power as there are 4 majorplayers in the sector and the price is being determined bythem.
3. Bargaining Power of Buyers: Low
Heavy Demand4. Threat of Substitutes: Very Low5. Competition: Low
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SWOT A NALYSIS
1. STRENGTHS:Capital Intensive nature of the sector.The players operating in this sector are financially strongAll the fertilizer plants are producing at more than 100 per cent
installed capacity of utilizationGoP supports in the form of subsidyCheap laborHeavy demand
Well established distribution sectorAn agro based economy
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SWOT A NALYSIS
2. WEAKNESSES:Low capacity as compared to demand (demand supply gap)Due to existence of black market and heavy demand farmershad to pay above the stated price
Technological backwardness: Lack of local resources
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SWOT A NALYSIS
3. OPPORTUNITIES:As the demand is high compared to supply, fertilizer sector hasan opportunity to expand capacity to fulfill the local demand.Export
Introduction of BT crops
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SWOT A NALYSIS
4. THREATS:Scarce water resourcesLoad-shedding of gasHike in fuel prices
TaxesRemoval of subsidyRising global prices of fertilizer productsGovernment intervenes to stabilize the prices
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PROJECTED EXCESS SUPPLY OF FERTILIZER IN WORLD
The export potential in the fertilizer sector of Pakistan remainslimited
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ASIA FERTILIZER FORECAST 2007/2008-2011/2012
2007/2008 2008/2009 2009/2010(000 tons) 2010/2011 2011/2012
N supply 72,123 76,317 79,933 85,491 89,850Total demand 75,255 76,111 77,961 80,413 82,476
Surplus
(Deficit)
(2,132) 206 1,972 5,078 7,374
P Supply 13,882 14,744 15,484 16,185 17,964
Total demand 19,209 19,890 20,560 21,168 21,784
Surplus(Deficit)
(5,327) (5,146) (5,076) (4,983) (3,820)
K Supply 5,428 5,524 6,226 6,450 6,530Total Demand 14,485 15,138 15,794 16,464 17,073
Surplus(Deficit)
(9,057) (9,614) (9,568) (10,014) (10,543)
Source: IFA
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RECOMMENDATIONS
Strict quality control and monitoring should be there to preventimport of sub-standard products and to curb adulteration and othermalpractices prevailing in this sector.
The problem of logistics should be looked into. Transportationthrough railway (being cheaper) especially during peak seasonsshould be made available.
There is a need to educate the farmers on balanced fertilizer use soas to neutralize the adverse impacts of constant use of nitrogenousfertilizers.