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How to stabilise urea price?
By Ahmad
Fraz Khan
THE federal cabinet in its recent meeting grilled one of its
members, for what it called ‘imported urea goof up’ last year and
warned him against any repeat performance this year. The same
meeting also approved import of 300,000 tons of urea fertiliser.
The allegations against the minister included failure to prevent
“black marketing of imported fertiliser that deprived farmers of
fair price and affected the Rabi crops.”
An otherwise calm Prime Minister Yousuf Raza Gilani also expressed
his displeasure as more articulate agriculturist from his hometown
lent support to the allegations.
Interestingly, farmers across the country had made these
allegations, which the cabinet woke up to a year late, last year –
with no one listening to them or correcting the course. They had
also been saying that they got the “urea on black market only, with
price much higher than officially declared one.”
The government responded last year by defending its performance
quoting import and subsidy figures and listing efforts to ensure
price.
This year, it has taken a somersault. But urgency has been added to
the issue as the government has planned to import 300,000 tons of
urea and letters of credit (LCs) for around 220,000 tons have
already been opened, with import schedule finalised.
The federal cabinet also needs to go into deeper issues involved in
domestic marketing of urea. These issues are massive, and cannot
certainly be solved by the ministry of industries alone.
They include administrative overlapping, conceptual confusion,
cartelisation, corrupt distribution network and inefficient markets.
Should distribution be left to the free market economy or
administratively-controlled mechanism to operate?
Any confusion on this issue can lead to wrong and costly decisions.
At present, there seems to be a monumental confusion. The entire
ruling set-ups (federal or provincial) are swinging between free
market distribution at conceptual level and populist political mode
at practical level.
The Punjab government, the biggest consumer of urea fertiliser, last
year over-administered the urea market in an effort to ensure stable
price instead of trying to create the policy and legal framework
that is essential for smooth working of free markets.
It thus ended up driving entire fertiliser stocks underground and
failing on both fronts -- supply and prices.
The government needs to take one clear direction, and then create
required infrastructure for its choice. Both choices have their own
political cost-benefit ratios and different corrective methods.
The cartels (private sector) are dealt with an elaborate system of
regulatory and anti-trust bodies to bring efficiency in the market.
To ensure officially declared price, the Punjab government has ended
up rigging the entire market; dealers hoarded their stocks, sold
them on personal references instead of shops and the price went up
despite healthy stocks.
If the provincial government continues its experiments with free
market and also keeps to administer markets instead of creating
free-market mechanism (efficient markets ruled by effective
regulatory mechanism), it runs the risk of ending up no where.
Fertiliser is a highly subsidised sector. Last year, the federal
government spared Rs30 billion on this head alone. It has promised
to repeat the feast this year too.
Had the federal government, after taking provincial governments into
confidence, spent the subsidy money (Rs30 billion) on bringing
efficiency in the agriculture markets, the benefit could have
started trickling. It also needs to create regulatory mechanisms,
and lend some teeth to them for controlling cartels. The
administrative power, though essential at certain stage, is not “the
only answer.”
DAWN :Monday, 08 Jun, 2009 |
