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KARACHI : Fertiliser sector seems to be one of the biggest beneficiaries of the budget for fiscal year 2008-09, as the government has raised the subsidy on the DAP by over 100 percent and the subsidies on gas supply would also continue to the fertiliser industry.
In the budget, the federal government has enhanced total fertiliser subsidy up to Rs 32 billion and Dia Ammonia Phosphate (DAP) subsidy per bag would be increased by Rs 530 per bag. After the current upsurge, subsidy on DAP would reach Rs 1,000 per 50-kg bag, which presently stands at Rs 470 per bag.
With the increase in the subsidy by over 100 percent, the prices are likely to decline by 18 to 22 percent and based on current DAP retail prices, it would reduce DAP retail prices by Rs 3,400 to Rs 2,900 per bag. During the next fiscal year, overall DAP off-take is expected to be 1.19 million tons and DAP subsidy based on country's total DAP off-take is calculated at Rs 23.73 billion, depicting an increase of 76 percent as compared to current fiscal year.
"The sales tax on urea and DAP fertilisers have also been removed which will act as another trigger for fertiliser sales," said Ayub Ansari an analyst at InvestCap.
He said that increase in DAP subsidy is expected to boost DAP sales, which was on decline by 65 percent due to sky high prices. It may also encourage pre-season dealer buying as DAP prices are expected to go up at the start of Rabi season. The analyst said some other measures which are expected to augment farmer propensity for fertiliser consumption include high agri credit target of Rs 230 billion and focus on livestock with improvement in milk supply chain.
"It is expected that government would announce wheat support price prior to the wheat sowing period between Aug-Sep while the current support price of Rs 625 per ton is going to be reviewed," Ansari said. Early announcement of support price will help farmers plan input purchases particularly DAP fertilisers, he added.
He said that budget FY09 is quite positive for the fertiliser sector and all the companies in fertiliser universe will benefit from the increase in fertiliser subsidy.
Copyright Business Recorder, 2008
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