Cost of production of Pakistan’s largest sector i.e. agriculture has increased by almost 200 per cent during last seven years mainly due to increasing cost of inputs such as fertilisers, diesel and electricity etc.
 Agriculture is the backbone of Pakistan’s economy, but it is still underperforming when compared with other sectors. During the current fiscal year, this sector has registered a meager 1.5 per cent growth against its huge potential. The main reason attributed to the low production is the less demand of inputs, especially fertilizer, in the backdrop of higher prices. The current fiscal year’s total off-take of fertilizer remained flat, with fall in phosphate and potash and increase in nitrogen fertilizers.
 Fiscal year 2008 proved disappointing for the agriculture sector as major crops registered a negative 3 per cent growth, accounts the Economic Survey.
 The 200 per cent increase in input cost discouraged large-scale cultivation, and, resultantly, production suffered to a large extent, says Ibrahim Mughal, chairman of Agri Forum Pakistan. He suggests few major initiatives for the agricultural development including supply of quality seeds to farmers, better marketing of the agri products and smooth water supply. “Believe me, Pakistan has the potential to produce commodities in abundance -- what we need is good quality seeds, but lack of management is hampering this,” he added.
 The last seven years proved very unlucky for the sector and its per acre production has plummeted, Mughal claims, who favours the construction of the controversial Kala Bagh dam for increasing water supply to the farmers. The government has announced that it will subsidize fertilizer in the coming fiscal year and will also subsidize imported fertilizers, including Urea, DAP and Phosphatic, to the tune of Rs35 billion. Besides, general sales tax on the pesticides has been eliminated. “These are welcoming steps, but the government needs to consider production of pesticides in the country by giving incentives to the local industries,” he suggests.
The official data shows that total urea off-take for the first five months of year 2008 reported increase of 58 per cent. On the other hand, with DAP prices taking its toll on the demand, DAP off-take reported 57.3 per cent decline. The average prices of DAP and urea during January to May 2008 increased by 14.6 per cent and 153 per cent, respectively.
 Urea sales increased from 1.43 million MT during five months to 2.27 million MT. The rebound in urea off-take is mainly attributable to a low base during the same period last year when high carryover inventory at dealer level, caused a 35 per cent decline in urea off-take. The growth has been further enhanced by substitution away from DAP owing to higher prices. With DAP prices unlikely to cool off significantly, it is widely expected that substitution towards urea will continue.
 DAP sales have been seeing a continuous decline due to surging prices which have made DAP unaffordable to the local farmers. After reporting one of the lowest sales, 6,000 MT in April 2008, DAP off-take improved substantially to 57,000 MT in May 2008. However, DAP off-take is still down by 57.4 per cent on year to year basis. During the review period, a total of 136,000 MT was sold in the local market compared to 319,000 MT sold in the same period last year. Demand for DAP is likely to take off by September 2008, when wheat sowing is expected to begin. The recent increase in subsidy is likely to reduce the price of DAP marginally. Average DAP prices during Jan-May 2008 increased 153 per cent in the local market. While, international DAP prices remained stable over the past two months, local DAP prices went up by 7 per cent month to month basis to Rs 2,971/bag, which is still at a 20 per cent discount to international DAP prices, say research reports.
 Analysts say that once the existing cheaper DAP inventories begin to draw down and new expensive shipments start to come in, local DAP prices are likely to take an upturn, wearing off the impact of recent subsidy increase on the final DAP price. Therefore, even after incorporating the recent increase of Rs530 per bag of additional subsidy, the final price of DAP is not likely to decline significantly. Average urea prices, on the other hand, are up 14.6 per cent. However, post exemption of sales tax on fertilizers, manufacturers have reduced urea price by Rs15/bag, though prices are likely to increase again after gas price increase in July 2008.
 The government has targeted Rs200 billion credit for the new fiscal year to meet the growing financing needs of agricultural sector; the stakeholder are demanding more credit to the tune of Rs 500 billion. “We need a comprehensive package for the sector which should address all the problems,” says Ibrahim Mughal.
 Presently, Pakistan is facing food crisis and wheat being prime food source is short mainly due to hoarding. A source in the Sindh food ministry said people were now stocking the commodity for the investment purposes to make better profits, in the absence of other investment opportunities. This attitude of few individuals and groups and governments’ negligence is creating acute hardship for the commoners. With the start of new fiscal year, the government has gifted the nation with increase in the prices of petroleum products and gas by almost 20 per cent and 31 per cent, respectively, which would again have a negative bearing on the sector, especially the poor farmers, with experts predicting a negative fallout on the economy as a whole.