Agriculture or economy: The chicken and egg problem

Energy crisis has claimed its latest victim - after reintroducing a big chunk of the populace to load shedding - urea fertiliser.

Jamuna Fertiliser Company Limited (JCFL), a urea producer, has not been operational for a month, and is likely to stay that way for the next three months. Its production target of 4.5 lakh tonnes for the current fiscal year will most likely not be met. Until last month, Petrobangla supplied 3,100 million cubic feet of gas (mmcf) per day to fertiliser factories, which has now dropped to 2,800mmcf.

Meanwhile, the Chittagong Urea Fertiliser Limited (CUFL) suspended its production on 19 July, two days after its officials told journalists that the government had directed them to continue production by rationing. Other fertiliser factories like the Shahjalal Fertiliser Company Ltd and the Ashuganj Fertiliser & Chemical Company Limited are also at risk of halting production.

The country requires 67 lakh tonnes of chemical fertilisers, of which urea is 26 lakh tonnes. The four factories in the country generally contribute 10.5 lakh tonnes of urea demand while the rest is imported.

If the situation persists, the country will be forced to import even more fertiliser from a volatile international market, where prices have shot up from Tk32 to Tk96 or more in two years. This will put more pressure on the dwindling foreign reserve, which is what led us to this energy crisis in the first place.

Keep in mind, the government provides fertiliser subsidies to the tune of Tk8,000-9,000 crores, while the Ministry of Agriculture spent Tk28,000 crores on imports last year.

To compound the problem, we have traditionally imported the lion's share of urea from Russia and Belarus.

Essentially, we slowed fertiliser production because we might run out of dollars trying to buy gas from the international market, leaving us needing dollars to buy fertiliser from the international market. 

Pressure from various fronts

On 20 July Agriculture Minister Muhammad Abdur Razzaque told the media, "It's unfortunate that local production of urea fertilizer has stopped due to gas shortage. But we've already taken some steps to collect urea from alternative sources no matter how much it'll cost."

Russia is a major exporter of fertilisers to Bangladesh. As Russia faces a barrage of sanctions due to their Ukraine invasion, Bangladesh has to look elsewhere for its fertiliser needs and pay a higher price. Another major supplier of fertilisers to Bangladesh, Belarus, has been heavily impacted by the war as well.

The Ministry of Industry has agreements with Saudi Arabia, Qatar and Dubai from where fertilisers are regularly imported. Reports suggest there are import opportunities from various countries, including Canada, Saudi Arabia, China, Morocco, Qatar, United Arab Emirates and Tunisia as well.

The government is however already under pressure due to the high import cost of chemical fertilisers since the breakout of the Russia-Ukraine war.

According to the agriculture ministry, one kg of urea fertiliser is costing Tk96 or more this year, forcing the government to subsidise Tk82 per kg. As fertiliser prices soared, Bangladesh had to spend more than $4 billion, up by 223% from a year ago, to import fertiliser in the 11 months of the last fiscal year till May.

All of this is already putting pressure on the foreign currency reserve, which has come down to $39.77 billion from $48 billion in 2021.

One way to prop up the reserve would be to avail a $4.5 billion loan from the International Monetary Firm (IMF) as budgetary support (which that government has reportedly sought and not sought - depending on who you ask). Unfortunately, such a loan might include a condition of reducing subsidy spending, which would in turn send food prices skyrocketing.

"This is a strategic dilemma," said Dr Mohammad Saidur Rahman, Professor, Department of Agricultural Economics, Bangladesh Agricultural University (BAU). "It is true the IMF might give us the loan at a low interest rate, but the government must negotiate regarding (cutting off) agricultural subsidies."

"We are an agriculture-based country; we still haven't emerged from the Covid-19 situation. Meanwhile, the price of essentials is on the rise. If the cost of agricultural products rise, the cost of food items will go beyond the purchasing capacity of ordinary people," said Dr Rahman.

Experts say we should have planned for this crisis earlier and emphasised increasing local production of fertiliser.

"If we had thought about these issues in advance, maybe we could have planned to increase local production of fertiliser," agricultural economist Dr Md Jahangir Alam. Dr Alam is of the opinion that in the current situation, closing the fertiliser manufacturing plants is not logical. Increasing local production should now be the primary objective.

"There is an energy and food crisis worldwide. None of the global supply systems is in a normal state. Amid this, if we want to produce more food, we must maintain the supply of fertilisers because it is directly related to food production," he added.

The government, however, seems to be relatively less worried.

Balai Krishna Hazra, additional secretary (Fertiliser Management and Materials Unit) of the Ministry of Agriculture, told TBS in an earlier interview, "Our demand for urea is 26 lakh metric tonnes, and at the same time, we have to keep a reserve of 8 lakh tonnes each year. Altogether, we need 34 lakh tonnes. We have no shortage of urea till December, meaning there will be no crisis in the Aman season."

Bangladesh, however, doesn't have the luxury of relaxing even if there is no fertiliser shortage during the Aman season. We need to look beyond Aman and to the Boro, which is the biggest crop and requires 60% of fertiliser supplies.

"Boro is our biggest harvest. We receive 57% of our rice yield during this harvest. We need the maximum amount of fertiliser, especially urea during this period. We have to ensure there is sufficient irrigation and fertiliser during this period at any cost. We have to ensure a good harvest," asserted Dr Rahman.

Meanwhile, we have the spectre of global warming looming as an additional threat to food security.    

"Regions like Bogura and Rajshahi are experiencing a lot of heat; if things continue like this until Boro season, there will be a drought. To tackle that situation, we will not only need higher levels of irrigation, but more fertiliser as well," added Dr Rahman.

A glimmer of hope?

Kyiv and Moscow signed a deal on Friday to free up Ukrainian grain exports that have been blocked since February. It is expected that some 22 million tonnes worth of Ukrainian grain currently stuck in silos, will now be released into the global market.

So there is a possibility that similar deals regarding fertiliser export might also be signed, especially as the US government itself is quietly encouraging agricultural and shipping companies to buy and carry more Russian fertiliser. But even if Russian fertiliser becomes more readily available, importing them will still put pressure on the foreign reserve.