The fertilizer industry remains highly concentrated, with a few firms dominating production and sales, raising concerns about reduced competition and potential anti-competitive practices.
The fertilizer industry remains highly concentrated, with a few firms dominating production and sales, raising concerns about reduced competition and potential anti-competitive practices.
Pakistan’s fertilizer industry plays a vital role in ensuring food security and economic growth. Over the decades, significant investments, capacity expansions, and acquisitions of modern technology have shaped the sector. The industry currently has a combined production capacity of approximately 9.17 million tons per annum, including nine urea plants, one DAP plant, three nitrogen-phosphorus (NP) plants, four SSP plants, two calcium ammonium nitrate (CAN) plants, one sulphate of potash (SOP) plant, and two blended NPK plants. Urea dominates production, accounting for about 70 per cent of total capacity, with an installed capacity of 6.31 million tons per annum.
The fertilizer sector is controlled by a few dominant players, with the top five companies till recently, accounting for about 95 per cent of sales. Despite its profitability, Pakistan’s fertilizer industry faces challenges such as gas supply issues, regulatory policies, import dependency, infrastructure constraints, and environmental concerns. Natural gas is a critical feedstock for urea production, but supply fluctuations have led to underutilisation of production capacity. For example, in 2013–2014 the industry operated at about 75 per cent of total capacity due to gas shortages.
As of February 2025, the government has been phasing out subsidised natural gas allocations for fertilizer companies. Historically, these subsidies aimed to support domestic production and to ensure affordable prices for farmers. However, in May 2024, the federal government discontinued gas subsidies, citing inefficiencies in price reductions for farmers. Instead, producers and intermediaries absorbed financial benefits, leading to profiteering and fertilizer smuggling to neighbouring countries. The government estimated that approximately Rs90 billion in subsidies were not reaching farmers, with an additional Rs30 billion lost due to informal channels.
Earlier, in February 2024, the government raised natural gas prices for the fertilizer sector by about 175 per cent, from approximately Rs580 per MMBtu to Rs1,597 per MMBtu. This increase was part of broader energy reforms aimed at reducing cross-subsidies, aligning domestic gas prices with international levels, addressing circular debt and promoting efficient gas use. The removal of gas subsidies reflects a shift towards direct farmer support to ensure targeted benefits. However, rising gas prices have increased fertilizer production costs, leading to higher retail prices for farmers.
A collaborative effort among the government, industry stakeholders and the farming community is essential to ensuring the long-term viability of Pakistan’s fertilizer industry. Strengthening regulatory oversight, enhancing market competition and prioritising transparency in gas pricing and distribution can help stabilise the sector
Regulatory policies on gas tariffs and subsidies significantly impact production costs and profitability, with inconsistent policies creating uncertainty and affecting investments. While urea production largely meets domestic demand, Pakistan relies on imports for other fertilizers, such as DAP and potash, exposing the industry to international market fluctuations, logistics constraints and foreign exchange volatility. Infrastructure limitations further hinder efficient fertilizer distribution, causing delays and added costs, particularly in remote areas.
The increasing dominance of a few players in the fertilizer industry raises serious concerns about cartelisation. Limited competition allows these firms to dictate prices, potentially leading to exploitative pricing strategies at the expense of farmers. Government intervention, through stricter regulations and market oversight, is crucial to ensuring that fertilizer remains affordable and accessible. The Competition Commission of Pakistan (CCP) must actively monitor anti-competitive behaviour and enforce laws that prevent monopolistic control.
Fertilizer production and excessive usage have also raised environmental concerns, including soil degradation and water pollution. Sustainable practices are necessary to mitigate these effects. Addressing these challenges requires policy reforms, infrastructure investment, diversification of raw material sources and the promotion of sustainable agriculture.
A collaborative effort among the government, industry stakeholders and the farming community is essential to ensuring the long-term viability of Pakistan’s fertilizer industry. Strengthening regulatory oversight, enhancing market competition and prioritising transparency in gas pricing and distribution can help stabilise the sector, support agricultural growth, and ensure food security.
The writer is a retired chairman of the State Engineering Corporation and former member (PT) of the Pakistan Nuclear Regulatory Authority.
