Saturday,21 July, 2018
Current issue | Issue 1159, (1 - 7 August 2013)
Saturday,21 July, 2018
Issue 1159, (1 - 7 August 2013)

Ahram Weekly

Cropping costs

Giving more subsidies to state-owned producers may help ease recurrent fertiliser shortages, writes Mona El-Fiqi

Al-Ahram Weekly

For years, the shortages of fertilisers have topped the list of Egyptian farmers’ concerns, especially during the summer season when they may have difficulty securing their quotas of subsidised fertilisers from the agricultural cooperatives.
According to Mohamed Ali, a farmer in the Daqahliya governorate, due to the shortages of subsidised fertilisers sold at LE75 per 50kg bag, farmers find themselves obliged to buy fertilisers at market prices, which hover around LE150.
The shortages in subsidised fertilisers are not due to a lack in production since Egypt’s total annual production of fertilisers is estimated at 16 million tonnes, of which eight million tonnes are produced by publicly owned factories while local consumption is nearly 10.5 million tonnes.
Instead, the shortages arise from the fact that while privately owned factories prefer to export their annual production of fertilisers, the production by state-owned producers cannot always meet local market demands.
The government depends on the production of three state-owned factories, Abu Qeer, Kima and Al-Delta, to satisfy local needs for subsidised fertilisers.
In a move aimed at encouraging public-sector companies to increase production and thus to cover the gap between supply and demand, the Ministry of Agriculture and Land Reclamation is currently negotiating a plan with the Ministry of Petroleum to reduce the price of the natural gas provided to these three factories from $4 to $3 BTU.
Natural gas constitutes 55 per cent of total fertiliser production costs.
Following the negotiations, the Ministry of Agriculture is expected to present a memo to Prime Minister Hazem Al-Beblawi, who will approve the decision.
Hussein Mohamed Hegazi, a professor of economics at Mansoura University, said that it was a good move to reduce energy costs since these impacted both producers and consumers. “If this decision is approved, it will have a positive impact on the public-sector fertiliser companies and it will encourage them to increase their production and tighten their losses,” he said.
Due to reasons including the price of energy and raw materials, the cost of fertiliser production has increased over the past few years. However, state-owned factories are committed to selling their production of fertilisers to the Ministry of Agricultural at a stable delivery price of LE1,500 per tonne, compared to the LE2,800 per tonne on the international market.
Some years ago, the government started to lift the energy subsidies provided to energy-intensive industries, including fertiliser factories. This change was based on the perception that these industries enjoyed a double privilege, since they received energy at low prices and sold their final products on international markets at high prices.
Natural gas is currently supplied to fertiliser factories at $4 per BTU, and the former government decided earlier this year to raise this price to $6 per BTU, though this decision has not been applied.
State-owned factories have complained that the government sells natural gas to both public and private fertiliser factories at the same rate, which they say is unfair as the former are committed to selling their total production to the Ministry of Agriculture at low prices.
According to the public producers, each dollar increase in natural gas prices costs them LE900 million annually due to the hike in the dollar exchange rate.
According to Hegazi, if applied the government’s new policy would make fertilisers available during the whole season and thus help to increase the productivity of cultivated land and achieve food self-sufficiency.
He pointed out that traders could exacerbate the problem by buying large amounts of fertilisers from factories and storing them to manipulate prices during the summer months when demand is usually high. Farmers need larger amounts of fertiliser for summer crops, particularly rice.
However, Ali Maher, former chairman of the Al-Delta Company for Fertilisers, ruled out that the Ministry of Petroleum would accept the new policy because it was against plans to lift the energy subsidies.
To overcome the shortages, Maher suggests scheduling an annual meeting between all the parties concerned, including the private-sector and public companies and the Ministry of Agriculture.
This meeting could be in January every year, and a clear plan could be set out to determine the capacity of each factory and the amounts needed to cover the demands of the local market, he said.
“The private-sector companies would easily respond and agree to provide some fertilisers for the local market. But the meeting should be held early enough so as not to contradict their export commitments,” Maher said.
To encourage the private sector to direct some of its production to the local market, Maher suggested that the government sell it natural gas at lower prices according to the amount of fertilisers delivered to the local market.
Agricultural cooperatives should also have a clear distribution plan, taking into account the needs of different farmers with regards to timing, he said. They also should have suitable warehouses to store their fertilisers before the season begins. Factories should give priority to covering the demands of the agricultural associations that provide fertilisers to farmers at low prices.
However, Hegazi added that the government should also tighten controls over these cooperatives in order to prevent them from selling fertilisers on the black market, leaving farmers to suffer from shortages.

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