For The Pakistan Agro-Based Economy
sector’s main strengths lie in the strategic-political importance to
agriculture growth. Till the time Pakistan reaches self-sufficiency in
agriculture production, they will continue to be the beneficiaries of
supportive steps and protection by the government. Since there is a lot of room
for improvement in our agricultural statistics, we can expect sustained
profitability in this industry.
industry players enjoy high entry barriers and thus protection from new
competition. This is because of:
The industry is highly
competitive in nature. Any new party will need to invest a substantial
strong distribution network is a pre-requisite. Since it takes time to
establish one, the already well established networks of the market leaders
are a great impediment.
brand loyalty of existing products is strong in the customers increasing
the risks for the new brand.
are price sensitive, while the large producers enjoy economies of scale.
consistent support of the government has helped the local producers to increase
their production capacities in order to meet the growing demand. These policies
have assured continuous ROE in the past, cheap gas, and fixed gas rates to
encourage domestic producers to enhance fertilizer capacity. They also help the
producers to encourage fertilizer use among the farmers. They provide:
State of the art technology:
technology of the fertilizer sector is quite old. Most of the plants are 15-20
years old, which may lead to decreasing efficiencies with the passage of time.
on agriculture results in volatile demand for the fertilizer sector.
Uncertainty in various factors led to sharp fluctuations in the fertilizer
demand. These factors include:
Dependence on government subsidy:
the long run, the government policy of gas subsidy for the local manufacturers
will shift from an advantage to a disadvantage. This is because there will be a
major decrease in the profitability of the firms if this subsidy is removed.
Volatility in the supply of gas:
In the past, the
production of the local manufacturers has been adversely affected due to
disruptions in the gas supply. This is a major weakness because any disturbance
in the supply in the peak season will affect the firms. For example the users
of Sui gas operate well below optimum capacity at the time of peak demand for
gas because Sui gas supplies natural gas to domestic users as well. Hence it
reduces its supply to the manufacturers during the peak demand season.
Lack of staff
The training program in EF is not running
managed/properly. There are lot of employees in EF who do not have skills
according to their jobs assigned. That is why there is a gap between job
descriptions and the capability of employees.
One major cost
for the local producers is the costs incurred on educating their consumers, who
are mainly illiterate, and making them aware of the uses of the application of
the fertilizers. This is not easy because providing them with the
relevant literature is not enough since they can’t read, have traditional views
and ideas about farming and are quite reluctant to adapt to new concepts.
Market shares can be increased:
fertilizer demand is far from saturated. Future demand increase will provide
opportunities for higher profitability through increased production. The
domestic producers can increase their production either through efficiency improvements.
The principal raw
material for the production of urea, natural gas, is produced locally. Hence,
the threat of higher input costs because of devaluation of the local currency
is minimized. In fact devaluation would benefit the local manufacturers as
their export potential of urea is realized.
The sector faces
a number of threats both in the long and short run. The threat of private
imports, increase in gas prices and foreign exchange crunch are significant
threats facing this sector. Each of these threats are discussed in detail