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 farm land 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, 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 Jan. 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 gross domestic product 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 follows Sharif’s move to provide incentives for the sector in 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’s central bank Governor Ashraf Mahmood Wathra said in an interview in November. The nation expects an economic growth rate of 5.7 percent in the year ending June, the fastest pace in a decade.
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 in 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 the agriculture sector,” said Mohammad Shahid Hussain, chief executive officer at Al-Ghazi Tractors.
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, Chief Executive Officer 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 on 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. The stocks were boosted by the news of the sales growth, along with the positive outlook for the industry amid the government’s actions, Gohar Rasool, head of international sales at Intermarket Securities Ltd., said in a phone interview from Karachi.
While farming-related companies are praising Sharif’s moves, there are doubts whether they will be sustained after the election.
“I see positive signs for the agriculture economy,” said Aqueel. “The government has given subsidies on water, electricity and fertilizer besides reducing duty on tractors. If they win the election, then what happens?”
(Bloomberg. Kamran Haider contributed)