The industries ministry has prepared a proposal in this regard, which will be placed at tomorrow's meeting of the Advisers' Committee on Economic Affairs.

Production cost of per kilogram paddy may rise by 2 percent if the proposed price of urea fertiliser is implemented, the proposal calculates.

Current price of per tonne urea fertiliser at the factory end is Tk 4,800, which has been proposed to set at the current production cost of Tk 7,000, with an increase of 45.83 percent. On the other hand, per tonne urea fertiliser is now being sold at Tk 5,300 at the buffer end, which will be hiked to Tk 8,000, with an increase of 50.94 percent, as per the industry ministry proposal.

The proposal said that annual demand of fertiliser in Bangladesh is 28 to 29 lakh metric tonnes while the six government-run fertiliser factories' present production capacity is 17 to 18 lakh metric tonnes at the highest. The rest of the demand is met by import and purchase from the Kafco. The cost of per tonne imported urea fertiliser is about Tk 25,000.

Due to the current subsidised price of urea fertiliser, the factories have to bear a loss of Tk 2,200 a tonne as the current production cost of per tonne fertiliser stands at Tk 7,000. This price of urea fertilise Tk 4,800 at the factory end was fixed in 1997.

The industries ministry proposal also cited the prices of urea fertiliser in India, from Tk 7,000 to Tk 7,600, and in Myanmar, from Tk 15,000 to Tk 19,000. Due to the high prices there, about 2 to3 lakh metric tonnes of urea fertiliser is smuggled out each year, the ministry estimates.

The proposal observed that the government incurs a total loss of Tk 2,900 crore per year due to low prices of urea. The loss is for subsidy in importing urea fertiliser and factories' losses as the production cost is higher. The urea factories are also suffering from acute cash flow crisis, which may compel these to close down.

Meanwhile, as the urea fertiliser is cheaper than other fertilisers, the farmers tend to use it more in their fields, which is a cause of declining fertility of land.

Besides, there are massive uses of subsidised urea fertiliser in non-agricultural sectors like paint industries, paper mills, dying mills, hardboard factories and even in fish farming.

Bangladesh Agriculture Research Council has done a study to estimate the possible impact of urea fertiliser price hike. Drawing from the study, the proposal that the production cost of per kilogram paddy is Tk 8.59 with the present prices of urea fertiliser. If the prices are raised as proposed, the production cost of per kilogram paddy will go up to Tk 8.71 that means an increase of Tk 0.12 per kilogram.

Another study by the industry ministry claimed that the production cost of per kilogram of urea fertiliser will be increased by Tk 0.16.

Recently, the government hiked the procurement price of rice, which will save the farmers from the adverse effect of urea fertiliser price hike.

The industry ministry proposal also described that they have already received opinions of deputy commissioners and district agricultural extension officers on the proposed price hike of urea fertiliser.

The report noted that such a price hike will not affect the farmers much, but it is important that the fertiliser is distributed among the farmers on time.