Urea shortage in Pakistan a hoax call

Certain quarters have started saying that Pakistan is likely to face shortage of urea that could affect wheat production and food security in the country. Their voice gets credibility because natural gas supply to fertilizer plants will be suspended from middle of October.

They say the gap between urea production and consumption has widened, raising fears of nitrogenous fertilizer shortage up to 500,000 tons during Rabi season, especially between the critical period of October 2023 and March 2024, when wheat and other crops are sown.

The market has also begun to see price distortions, the industry is providing urea as usual but the middlemen are selling it at higher rate.

Farmers are being fleeced by middlemen, who are charging a premium up to PKR1,000 per bag above the retail price.

According to the National Fertilizer Development Center (NFDC) projections, total urea availability as of October 01, 2023, is expected to be only 69,000 tons, compared to 294,000 tons during the same period last year. During the last Rabi season, around 300,000 tons of urea was imported, but no plan has been set by the government to meet the critical requirement of farm nutrients for this season.

Some groups are asking the government to immediately import at least 500,000 tons urea and ensure its arrival in November 2023 to avoid a shortage and also ensure uninterrupted supply at full capacity keep the plants operating simultaneously.

Every year around this time Pakistan is forced to import urea. However, this year the government should continue gas supply to the fertilizer plants as the gas prices are attractive level in the international market.

For those, who may not be aware, Pakistan has an installed capacity to produce 7 million tons urea, but the manufacturers produce 6 million tons.  

There is also the responsibility of the ruling junta to also take concrete steps to stop the smuggling of fertilizer through the Western borders.

Viterra in talks to merge with Bunge

Global grain trader Viterra is in talks to merge with US rival Bunge in a potential mega deal that would reshape the top tier of global grains merchants.

There is no certainty that Viterra, part-owned by Switzerland-based mining and trading giant Glencore, will be able to reach an agreement on the terms. The deal structure is being discussed by both parties.

Any deal would be closely scrutinized by regulators as trade in staples such as wheat, corn and soybeans is already concentrated among Bunge and three other large players, raising global concerns about food security.

Bunge last year was the largest corn and soy exporter from Brazil, the world's top source of the staple crops for making animal feed and biofuels, according to data from shipping agent Cargonave. Viterra was the third largest corn exporter and seventh soybean shipper.

A merger with Viterra would also lift Bunge, with 2022 revenues of US$67.2 billion, closer to its nearest publicly traded agribusiness rival Archer-Daniels-Midland Co, which registered sales of nearly US$102 billion last year.

Shares of Bunge closed at a three-week high of US$93.61 on Thursday, valuing the company at about US$14 billion. Glencore shares fell 0.7%.

Global commodities merchants have built up cash reserves after turning in hefty profits over the past year as Russia's invasion of Ukraine disrupted shipments and crop prices soaring.

The agribusinesses make money buying, selling, storing and processing crops, often capitalizing on supply disruptions caused by crises like drought or war.

A merger with Bunge would put Viterra among the top tier of global grains merchants, with access to export terminals in the United States, one of largest grain producers and suppliers.

Viterra bought US-based Gavilon from Japan's Marubeni last year for US$1.1 billion, giving it significantly more physical grain handling assets in the US and making it the third-largest exporter of soybeans in Brazil, where Bunge already has a strong presence.

Viterra, formerly known as Glencore Agriculture, made the headlines in 2017 for a failed takeover approach to Bunge, one of the giant names of global grain trading, then valued at US$11 billion.

In May 2017, Bunge rebuffed Glencore after the latter made an informal approach to discuss a possible consensual business combination.

Glencore had publicly said it was reviewing options for its interest in Viterra, looking to unlock more value.

 

 

Pakistan: Agriculture Strongest Forte

Agriculture is the strongest forte of Pakistan’s economy. Over the years, the sector has played a key role in achieving food security, boosting exports and ushering foreign direct investment in the country. It provides raw material to two of the large scale manufacturing industries i.e. textiles and clothing and sugar.

The sector contributes around 20% to country’s GDP, accounts for more than 60% of total export-proceeds earned by the country and provides employment to nearly 45% of the total labour force. Pakistan ranks eighth worldwide in farm output - it is among the leading producers of Wheat (7th), Rice (11th), Cotton (4th), Sugarcane (5th) and Mango (4th).

The most important crops are wheat, sugarcane, cotton, and rice, which together account for more than 75% of the value of total crop output. Lately Pakistan joined the Club of wheat exporting countries by achieving over 25 million tons of the staple food grain per annum.

Over the years the government introduced agriculture assistance policies, including increased support prices for many agricultural commodities and expanded availability of agricultural credit.

Much of the Pakistan's agriculture output is utilized by the country's growing processed-food industry. The value of processed retail food sales has grown considerably over the years.

Lately Pakistan joined the Club of wheat exporting countries by achieving over 25 million tons of the staple food grain per annum. During the outgoing financial year Wheat output was a little below 25 million tons. Rice production was around 7.5 million tons. Maize crop size was reported around 7.3 million tons. Cotton and Sugarcane production remain below the target.

Wheat is staple food grain and many bakery products are made from it. This year due to some issues faced during wheat procurement, the quantity bought by the government remained below target. However, private sector purchased substantial quantity. It is necessary to point out that due to the shortage of modern gain storage silos; nearly 15% of the wheat produced goes stale before reaching the market.

Rice is the second main staple food crop and also another major exportable commodity. Pakistan produces different verities of rice, but Basmati enjoys a unique preference because of grain size and its aroma. Traditionally, Pakistan has been exporting rice in bulk which used to fetch lower price. Lately, many brand of rice have attained global recognition, but India continues to give tough competition in the global markets.

Red Chilli is a major crop of Pakistan as also exported in large quantity. Chilies are one of the largest traded spices in the International market. In Sindh, Chilies are mainly grown in Kunri, a small town of Umer Kot district. The area contributes around 85% of Pakistan’s red chili production and it is also known as one of the largest production centers for red chilies and also known as the red chilli capital of Asia. Export of red chilli can help in earning substantial foreign exchange.

Maize is also an important crop that can be cultivated on average quality soil. It is said that each and every part of the plant is consumed by human beings and animals. Two of the most consumed forms are oil and flour. It is also an important source of non-animal protein for chicken feed. At an average the country produces about 7 million tons of maize.

Soybean is an important source of edible oil. Seed is processed to extract oil for human consumption and its meal is a rich source of protein, primarily used as feed for poultry, dairy, beef and fish industry. Currently, soybean cultivation in Pakistan is highly negligible. Owing to its nutritional value and multiple uses, it is also called the “Golden bean”. Interestingly, all the soil and climatic conditions of all the four provinces are suitable for soybean. As the soybean can help cut edible oil imports to a significant extent, the Ministry of National Food Security and Research needs to launch a massive awareness drive at federal level in close coordination with provincial agricultural departments.

The contribution of agriculture in economy of the country can be further enhances by exercising better crop management, containing post-harvest losses by constructing modern storage and logistic facilities and achieving greater value addition. Developing a robust rural economy will also contain influx of people in search of job to cities, from rural areas.

Pakistan is among the top five largest cotton producing countries of the world. Pakistan is also known as ‘Cotton Country’. Cotton is the basic raw material for country’s largest industry, Textiles and Clothing, which contributes more than 60% to Pakistan’s total export proceeds. Bulk of the Textile and Clothing exports now comprises of value added products. Major buyers of made in Pakistan Textiles and Clothing are United States, European Union, China and some oil-rich Middle Eastern countries. Cotton seed-oil contributes a significant quantity of total edible oil produced in the country and oil-cake being used to feed mammals.

Sugarcane is the second largest cash crop of Pakistan. It is being cultivated in Punjab, Sindh and KPK. There are about 85 sugar mills operating in the country, producing over 4.2 million tons sugar annually, sufficient to meet the local demand. Two by-products of sugarcane are molasses and baggase. Bulk of the molasses is exported but lately many mills have also started producing and exporting alcohol, which is used in the production of biofuel. Baggase is commonly used in the production of chip board, an efficient alternative for wood. It is also used as fuel in brick kilns.             

 

 

 

Iran export from Sistan Baluchestan up 32%

The value of non-oil export from Sistan-Baluchestan province, in the southeast of Iran, rose 32% in the first nine months of the current Iranian calendar year (March-December, 2022), as compared to the same period last year, according to a provincial official.

Mojtaba Shojaei, the Director General of the province’s governorate’s office of economic affairs coordination, said 1.165 million tons of products worth US$165 million were exported from Sistan-Baluchestan in the mentioned nine-month period, indicating also 78% growth in terms of weight YoY.

He named cement, clinker, travertine stone, coal coke, coal, dates, gas, vegetables, agricultural poison and agricultural products as the main exported items, and Pakistan, Afghanistan, India, Iraq, Kuwait, the United Arab Emirates (UAE), Turkmenistan, Uzbekistan and Indonesia as the major export destinations.

The official further announced that 1,157 tons of commodities valued at US$1.184 million were imported to the province in the first nine months of the present year, with 17% rise in value, while 26% drop in weight, year on year.

He named wheat, rice, cattle corn, cattle oats, mango, banana, sesame, potato, live livestock, fabric, tea, car spare parts, light and heavy car tires, cooling devices, spices, and fish as the main imported items, and Russia, Pakistan, France, Germany, India, Brazil, United Arab Emirates, China, Thailand and Afghanistan as the major sources of imports during the first nine months of the current year.

Based on the data released by the Islamic Republic of Iran Customs Administration (IRICA), the value of Iran’s non-oil export rose 19 percent from the beginning of the current Iranian calendar year (March 21, 2022) up to December 31, as compared to the same period of time in the past year.

According to the IRICA data, Iran exported 97.843 million tons of goods valued at US$43.088 billion in the mentioned period, also registering 2% increase in weight

Liquefied natural gas, liquefied propane, methanol, liquefied butane, and film-grade polyethylene were the main exported products in the said time span.

Major export destinations of the Iranian non-oil goods were China, Iraq, Turkey, the United Arab Emirates, and India.

The Islamic Republic has also imported 28.18 million tons of non-oil commodities worth $44.337 billion in the first 286 days of the present year, with a 14.7% growth in value and a 10% increase in weight, year on year.

The major items of goods imported into the country in the said period include corn, rice, wheat, soybeans, sunflower seed oil, and cell phones, based on the IRICA data.

The United Arab Emirates was the top exporter to Iran in the mentioned period, followed by China, Turkey, India, and Germany.

Reportedly, the value of Iran’s non-oil trade rose 17% during the mentioned period, as compared to the same time period last year.

Iran traded more than 126 million tons of non-oil products worth over US$88 billion with other countries in the mentioned period.

 

A wake up call for ruling junta of Pakistan

Pakistan has an agro-based economy and the country is heavily dependent on imported energy products. As country’s trade deficit is mounting there is need to revisit government policies. The other alarming factors are: 1) extensive borrowing to meet the budget deficit and 2) deceleration in remittances. The added problem is that with the commencement of winter industrial units, particularly textiles units are likely to be a major sufferer and exports of textiles and clothing destined to plunge.

As stated earlier, Pakistan is heavily dependent on imported energy products; any hike in crude oil prices does not bode well for the country, though capital market analysts term the hike good for E&P and downstream companies listed at Pakistan Stock Exchange (PSX). A stronger dollar is likely to keep commodity prices in check, but also expected to make imported commodities more expensive.

Pakistan Steel is closed for months and there are no signs of its commencing production in the near future. Its price has posted 16.4%MoM increase in November, as Chinese producers re-align supply and the government implements a policy of curtailing supply.  This is likely to cause further hike in steel price, which does not bode well for Pakistan

Pakistan is a major user of coal, in cement industry. Coal price drop on Chinese relaxation on mining controls: After reaching a 5-year high, coal price has fallen to US$83.5/ton as the government asked the coal miners to lift up output till the end of end of winter heating season to counter the surging price. The coal price decline has remained slower as the Chinese coal producers were unable to ramp up production quickly due to medium-to-long term supply contracts and time to bring back coal mines into production. Nonetheless, normalizing of seasonal demand post-winters, will likely witness further fall in coal price as China will continue its policy to do away with coal based energy.

Fertilizer is one of the major industries of Pakistan and currently suffers from poor capacity utilization. Added to this is, extremely low international prices of urea, affecting the earnings of local manufacturers. In November its prices rose to US$224/tons as compared to US$201/tons a month ago.  While continuing to recover from lows of US$172/ton seen in July 2015, urea prices remain down 8%YoY as oversupply and weak demand continue. On the domestic front, recovery in international prices is likely to enhance pricing power of local manufacturers, who are already plagued by lower off-take. However, further recovery in off-take remains more likely to be a product of price reduction.

Global cotton prices during November remained higher as compared to last year (up 14%YoY) on the back of continued price recovery. The monthly USDA report featured an increase in global annual production up to 103.3 million bales and virtually no change to world mill-use, resulting in additions to global stocks. Following the global trend, prices in the domestic market remained on the higher side in November. Despite higher-than-expected phutti arrivals, prices of quality cotton move higher because of sustained buying by mills and spinners. Moreover, temporary ban on cotton import from India kept demand of local cotton robust.

This year Pakistan is likely get another bumper crop of wheat but of no benefit. While the surplus can’t be exported, post harvest losses are feared to increase due to inadequate storage facilities. Lack of supporting policies has failed in attracting investors to construct modern warehouses and collateral management companies. Absence of modern silos results in up to 20 percent post harvest losses. Saving this could boost income of farmers and also bring down price of staple grain n the country.