Bangladesh agriculture is threatened by hampered urea imports

Bangladesh faces a critical challenge in its agricultural sector due to its dwindling foreign exchange reserves, significantly affecting urea imports. The country’s economic strain has led to a precarious situation for Karnaphuli Fertilizer Company Limited (KAFCO), an export-oriented joint venture in Chittagong. The dollar crisis has stirred uncertainty among farmers, particularly during the Boro-planting season, which is approaching its peak.

The state-run Bangladesh Chemical Industries Corporation (BCIC) has expressed grave concerns over the potential repercussions if two state-owned banks fail to clear approximately $104mn in dues to KAFCO. This outstanding amount is crucial for importing 25o,000 metric tonnes of urea, vital for the current planting season. The overdue amounts include $75.92mn to the Bangladesh Krishi Bank and $28.75mn to Agrani Bank.

BCIC has escalated the issue to the finance ministry, underscoring the importance of clearing dues to KAFCO, a primary granular urea manufacturer and supplier in Bangladesh. The Bangladesh Agricultural Development Corporation (BADC) estimates the country’s urea requirement to be about 2.7 million metric tonnes for the current fiscal year, with the majority expected to be met through imports.

For fiscal year 2023-24, the government aims to import 900,000 metric tonnes of urea via government-to-government arrangements and an additional 550,000 metric tonnes through KAFCO. However, the BCIC has warned that any disruption in urea imports could lead to a broader fertilizer shortage, jeopardizing food security, inciting farmer discontent, and tarnishing the government’s reputation.

The country’s foreign exchange reserves have been on a downward trajectory, exacerbated by increased global import costs and disappointing earnings from remittance and exports. From a peak of $48bn in August 2021, the reserves have been rapidly depleting. In response, the central bank has adopted various measures, including engaging in alternative currency arrangements like utilizing the Chinese yuan for international transactions. Despite these efforts, officials assert that the current reserves can cover roughly four months of import bills, whereas six months’ worth of reserves is considered adequate for an economy like Bangladesh’s.

KAFCO has a diverse shareholder base that includes the government, BCIC, and international stakeholders from Japan, Denmark, and the Netherlands.