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Abstract

The current regulatory framework for the fertilizer sector in Pakistan is based upon a huge subsidy on urea processing and use, control on entry through a monopolistic gas supply and tight regulation on distribution, and promotion of urea at the cost of other nutrients. This setting is not sustainable because it has created a huge burden on the exchequer, inefficiency in fertilizer use, un-competitiveness in international markets, and abnormal profits to the industry without much benefit to farmers. This study first explains the existing regulatory framework and quantifies its impact, and then uses an Equilibrium Displacement Model (EDM) to estimate the impact of policy reform on multi-commodities and multi-stakeholder markets. Simulations of several policy options suggests that, under certain scenarios, the abnormal profit of processors can be squeezed, farmers’ profit enhanced, and the burden on exchequer can be reduced without much impact on productivity if free trade is allowed.

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