Equity Analysis /
Pakistan

Pakistan Strategy - Government announces Agriculture Package

  • PM unveiled an Agriculture Package that aims to subsidize markup of PKR1,800bn worth of agri-loans c.PKR600bn subsidy

  • PKR30bn allotment of subsidy on 0.3mn tons import of Urea, where PKR5,000/bag relief will be provided.

  • The government has decided to pay 40% duty rebate on the import of second-hand tractors.

Intermarket Securities
1 November 2022

Prime Minister Shahbaz Sharif unveiled an Agriculture Package that aims to subsidize markup of PKR1,800bn worth of agri-loans, higher than PKR1,400bn loan disbursements from last year. The entire package, which is entitled to cost the government PKR600bn (c.0.8% of GDP) also incentivizes fertilizer product prices as well as tractor imports in the country.

Impact on Fertilizer: Neutral to Positive for demand

PM has announced various initiatives on fertilizer products to protect farmers from a shortage of Urea and to help them get easy and cheaper access to DAP during the peak season. These incentives include:

I.        PKR30bn allotment of subsidy on 0.3mn tons import of Urea, where PKR5,000/bag relief will be provided to sell it at prevailing market prices. This will not only ensure the availability of Urea in the market at a time when certain industry players have undergo scheduled and unscheduled maintenance, but will also keep Urea dealer transfer price at PKR2,155/bag. The government has negotiated Urea import price to USD500/ton, compared to market prevailing price of USD600/ton.

II.        DAP prices to be reduced by PKR2,500/bag to PKR11,500/bag. This is after the negotiation with industry players, where players have agreed to cut DAP margins. This initiative will help farmers save PKR58bn (assuming offtake of 1.16mn tons) during ongoing Rabi season and beyond.

III.        1.2mn bags of seeds will be disbursed to farmers on equal cost sharing basis.

IV.        Markup payment of PKR10.6bn has been waived for small farmers located in flood affected areas. This will improve the liquidity and cash position of the farmers.

V.        PKR1,800bn loans will be disbursed to farmers in FY23. This will help farmers in covering floods related losses, increase fertilizer demand and improve food security.

Apart from this, interest free loans for initial 300,000 tube wells and free electricity for the same are also part of the package.  The electricity unit price has been fixed at PKR13/unit on immediate basis - this comprises of PKR43bn subsidy in total.

Impact on Tractors: Sales may reduce amid new measures

The new package has negative implications for the tractor sector as the government has decided to pay 50% duty rebate on the import of 5-years old second-hand tractors and 30% rebate on 3-years old tractors. Apart from this, to encourage fresh investment in this industry, the government has decided to slash import duty on CKD parts from 35% to 15%. Both these measures are slated to negatively impact the sales outlook for MTL and AGTL.