Pakistan's Fertilizer Crisis: A Triple Bind Explained

Agriculture remains the bedrock of Pakistan’s economy and social fabric, anchoring food security, rural livelihoods, and macroeconomic stability. The sector contributes approximately 19.5 percent to national GDP, employs 37.4 percent of the labor force, and directly supports the livelihoods of nearly two-thirds of the rural population (Pakistan Economic Survey, 2022–23). Within this system, fertilizers occupy a strategic position. Empirical evidence consistently shows that chemical fertilizers account for roughly 30–50 percent of yield gains in major crops, making them indispensable for sustaining output growth on increasingly constrained land and water resources. In a country facing rapid population growth and climate-induced production volatility, reliable access to fertilizers is therefore not a technical issue alone, but a core pillar of national food security.

Yet Pakistan’s fertilizer sector is trapped in a persistent and mutually reinforcing crisis. Recurrent seasonal shortages particularly during peak sowing periods for wheat, cotton, and rice disrupt farm operations and depress yields. These shortages are not merely logistical failures; they are closely linked to a heavily subsidized pricing regime that distorts production incentives, encourages hoarding and speculative behavior, and undermines timely distribution. To shield farmers from rising global input prices, successive governments have expanded fertilizer subsidies, but these interventions have imposed a growing fiscal burden. Subsidy outlays have surged during periods of energy price spikes and currency depreciation, placing severe strain on the federal budget and crowding out spending on agricultural research, irrigation, and climate adaptation.

This interaction creates a “triple bind” in which shortages fuel political pressure for higher subsidies, subsidies exacerbate fiscal stress and market distortions, and fiscal constraints weaken the state’s capacity to reform the system. The result is a policy stalemate that threatens productivity, equity, and macroeconomic stability simultaneously. This review seeks to unpack this complex nexus, critically assess alternative reform pathways, and identify priority research areas needed to transition Pakistan’s fertilizer sector toward efficiency, affordability, and long-term sustainability.

The Anatomy of a Predictable Crisis: Fertilizer Shortages in Pakistan

Fertilizer shortages in Pakistan are not episodic shocks but the outcome of deep structural and institutional weaknesses that make supply disruptions both predictable and recurrent. At the core lies a pronounced structural supply–demand imbalance. Pakistan enjoys near self-sufficiency in urea due to indigenous natural gas availability and substantial domestic production capacity. In contrast, the country remains over 90 percent import-dependent for phosphate fertilizers such as DAP and entirely reliant on imports for potash (NFDC, 2023). This duality exposes the fertilizer market to two distinct but interlinked shortage dynamics.

Urea shortages persist despite surplus installed capacity. Seasonal diversion of natural gas to residential and power sectors particularly during winter forces fertilizer plants to curtail or suspend operations. During the Rabi season 2022–23 alone, gas curtailments resulted in a production shortfall exceeding 300,000 tonnes (SBP, 2023), precisely when farmer demand peaks. Compounding this, artificially low domestic prices maintained through subsidies create strong incentives for cross-border smuggling to Afghanistan and, indirectly, to India. These leakages drain domestic supply and intensify scarcity, even when production capacity exists.

Imported fertilizer shortages are driven by external vulnerabilities. Global price volatility, as witnessed during the 2022 fertilizer price shock when DAP prices crossed USD 900 per tonne, coincided with Pakistan’s acute foreign exchange crisis. Delays in opening letters of credit, coupled with reactive rather than anticipatory government procurement, resulted in fertilizers arriving late or not at all during critical sowing windows (Khalid & Ghani, 2022).

Distributional failures further aggravate shortages. A concentrated dealer network, weak monitoring, and poor provincial enforcement allow hoarding and speculative withholding of stocks, often ahead of subsidy announcements (Zaidi, 2020). The consequences for food security are substantial. Evidence suggests that a 10 percent shortfall in recommended fertilizer application can reduce wheat and rice yields by 5–8 percent (Ali & Ashfaq, 2019), depressing farm incomes, deepening rural poverty, and ultimately forcing costly food imports that further strain scarce foreign exchange reserves.

The Subsidy Regime: Well-Intentioned but Perverse

Fertilizer subsidies in Pakistan were designed to protect farmers from price volatility and ensure food security, yet over time they have evolved into a complex and distortionary policy framework with significant unintended consequences. The subsidy regime operates through multiple layers, each imposing fiscal, market, and environmental costs. The most significant component is the implicit feedstock subsidy, whereby urea manufacturers receive natural gas at prices far below market value. While this lowers production costs and retail prices, it represents a substantial loss of government revenue and weakens incentives for efficiency in fertilizer manufacturing and energy use.

A second layer is the explicit price differential subsidy on imported fertilizers, particularly DAP. Here, the government absorbs the gap between volatile international prices and administratively fixed domestic prices. During periods of global price spikes and currency depreciation, this mechanism generates massive and unpredictable fiscal outlays, placing acute pressure on the federal budget and foreign exchange reserves. More recently, policymakers have introduced targeted direct transfer instruments such as the Kissan Card, aiming to replace price subsidies with digital cash support to farmers. However, weak farmer registries, limited financial inclusion, and uneven digital literacy constrain the effectiveness and coverage of these initiatives.

The distortions created by this regime are severe. Subsidy bias toward urea has driven a highly imbalanced nutrient application pattern, with Pakistan’s NPK ratio deteriorating to approximately 7:2:1 compared to the recommended 4:2:1 (Parry & Tareen, 2022). This overuse of nitrogen accelerates soil degradation, micronutrient depletion, and environmental pollution. Distributional inequities are also pronounced, as large landowners and manufacturers capture a disproportionate share of benefits, while smallholders, especially in remote regions such as Balochistan often face shortages or pay higher effective prices. Finally, heavy government intervention in DAP imports crowds out private investment in storage, logistics, and supply chains, perpetuating uncertainty and reinforcing the cycle of shortages and fiscal stress.

Fiscal Stress, Macroeconomic Fallout, and the Political Economy Trap

Pakistan’s fertilizer policy imposes a substantial and destabilizing fiscal burden with far-reaching macroeconomic consequences. The combined cost of explicit price subsidies on imported fertilizers and implicit feedstock subsidies to domestic urea manufacturers surged to an estimated PKR 450–500 billion in FY2023 (Ministry of Finance, 2023). This figure is nearly equivalent to the entire federal Public Sector Development Program, underscoring how fertilizer subsidies crowd out spending on infrastructure, health, education, and long-term agricultural investments. Because a large portion of this expenditure is unbudgeted and reactive, often announced in response to shortages or political pressure it exacerbates fiscal slippage, widens the budget deficit, and fuels inflationary pressures. Financing these subsidies through borrowing further accelerates public debt accumulation and weakens macroeconomic stability. Unsurprisingly, fertilizer subsidies have become a recurrent flashpoint in IMF-supported adjustment programs, which consistently call for replacing blanket price support with targeted, fiscally sustainable mechanisms (IMF, 2023).

These fiscal pressures are embedded in a self-reinforcing political economy trap. Seasonal shortages trigger political emergencies, compelling governments to announce subsidies to placate farmers and consumers. These subsidies inflate the fiscal deficit, leaving limited fiscal space for structural investments such as storage infrastructure, domestic DAP production, or supply-chain modernization. As a result, the underlying vulnerabilities remain unresolved, making the system prone to the next crisis. This vicious cycle is sustained by entrenched interests, including large landowners, fertilizer manufacturers, and segments of the bureaucracy that benefit from opacity and discretionary controls, creating strong resistance to reform (Husain, 2021).

Breaking this stalemate requires a sequenced, multi-pronged reform agenda. In the short term, digitized targeting mechanisms such as the Kissan Card must be rapidly strengthened to enable biometric, direct cash transfers to smallholders, while strategic buffer stocks of DAP and legally guaranteed off-peak gas supply for urea plants can smooth seasonal volatility. Over the medium term, a shift toward nutrient-based subsidies, gradual rationalization of gas prices, and incentives for domestic phosphate development can reduce distortions and fiscal exposure. In the long run, sustained investment in soil health, extension services, independent input pricing institutions, and green fertilizer alternatives is essential to restore fiscal discipline, enhance productivity, and place Pakistan’s fertilizer system on a sustainable, resilient footing.

Conclusion

This article has demonstrated that Pakistan’s fertilizer crisis is not the result of isolated policy failures but a deeply entrenched “triple bind” in which shortages, subsidies, and fiscal stress continuously reinforce one another. Fertilizers remain indispensable for sustaining agricultural productivity, food security, and rural livelihoods, yet the existing policy framework has proven incapable of ensuring reliable supply, equitable access, or fiscal sustainability. Recurrent shortages rooted in structural import dependence, energy misallocation, and weak distributional governance disrupt farm decision-making and depress yields. At the same time, a heavily subsidized pricing regime, though well-intentioned, has generated severe market distortions, environmental degradation, and inequitable benefit capture, while placing an unsustainable burden on public finances.

The analysis underscores that reactive subsidies cannot substitute for systemic reform. By absorbing scarce fiscal resources, the current approach undermines long-term investments in soil health, domestic fertilizer capacity, supply-chain resilience, and climate adaptation precisely the areas needed to break the cycle of crisis. Moving forward, Pakistan must transition from price-based, politically driven interventions toward a more transparent, targeted, and nutrient-balanced support system. Digitized farmer targeting, nutrient-based subsidies, rational energy pricing, and credible institutional coordination are not merely technical fixes but prerequisites for restoring confidence and efficiency in the fertilizer market. Ultimately, resolving the fertilizer crisis is central to safeguarding food security, stabilizing public finances, and building a resilient agricultural economy capable of withstanding future economic and climatic shocks.

References: Government of Pakistan; National Fertilizer Development Centre (NFDC); State Bank of Pakistan; Khalid & Ghani; Zaidi; Ali & Ashfaq; Parry & Tareen; Ministry of Finance; International Monetary Fund; Husain; World Bank.

Please note that the views expressed in this article are of the author and do not necessarily reflect the views or policies of any organization.

The writer is affiliated with the Institute of Agricultural and Resource Economics, University of Agriculture, Faisalabad, Pakistan.

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