With just a year left before Pakistan’s general elections, Prime Minister Nawaz Sharif is wooing an industry that accounts for about half of the nation’s labor force.
Sharif intervened in January to reinstate an eight-month-old fertilizer subsidy in a bid to reverse a drop in Pakistan’s farming output.
The biggest beneficiaries for the largess will be his home state of Punjab, Pakistan’s most populated with the largest tracks of farmland in a country where agriculture makes up about a fifth of the economy.
“With the election ahead, government is giving all forms of subsidies, fertilizer prices have come down and that’s a big kicker,” Atif Kaludi, chief financial officer at Engro Fertilizers Ltd., said in a phone interview. Pakistan’s four major crops: cotton, rice, sugarcane and wheat “were in losses last year, they will be making money now. There is going to be a significant improvement from last year.”
Sharif, who has also pledged to end power shortages that had been crippling factories, is now focusing on agriculture after output declined for the first time in more than a decade. More than half of Pakistan’s population of about 200 million live in rural areas dominated by large landowners who often influence voters, and mostly rely on farm income for a living.
The government ended the fertilizer subsidy after the National Food Security and Research Ministry said the 28 billion rupees ($267 million) allocated had run out on January 10. Five days later Sharif ordered it to be extended.
“Agriculture is the backbone of our economy and farmers must be facilitated to achieve bumper crops for accelerated GDP growth,” Sharif said in a statement at the time. Sharif’s spokesman, Musadiq Malik, didn’t respond to calls seeking further comment.
Price caps for fertilizers follow Sharif’s move to provide incentives for the sector last June, when the government cut a sales tax on tractors by half to 5 percent. That came after agricultural output fell 0.2 percent in year ended June, the first decline since since 2001, according to finance ministry data, with cotton production falling by 29 percent.
“If we get back to our normal output of cotton this year, which is very likely, we will make a lot of improvement,” Pakistan Central Bank Governor Ashraf Mahmood Wathra said in an interview last November. The nation expects an economic growth rate of 5.7 percent in the year ending June, the fastest pace in a decade.
Cash in
Companies are waiting to cash in. Nationwide sales of urea fertilizer rose 32 percent to 3.62 million tons in six months ended December after the subsidy was introduced last July, according to Karachi-based brokerage Arif Habib Ltd.
“The government took some time, but now the realization is there, politically, if you look at it, the major vote bank is coming from agriculture sector,” said Mohammad Shahid Hussain, chief executive officer at Al-Ghazi Tractors Ltd.
The tax cut for tractors is set to boost sales with Al-Ghazi Tractors aiming for a 15-percent increase this year, Hussain said. Millat Tractors Ltd., the nation’s largest, expects its sales to cross 30,000 in year ending June compared with about 21,000 last year, CEO Syed Muhammad Irfan Aqueel said in a phone interview.
Tractor sales in the country rose to 5,390 units in January, the highest since December 2013, according to data released last Friday by the Pakistan Automotive Manufacturers Association.
Shares in Al-Ghazi Tractors advanced 4 percent to 610 rupees at 9:39 a.m. in Karachi on Monday, snapping a five-day losing streak. Millat Tractors rose 2 percent.