KARCHI - The federal government is likely to increase the subsidy grant for fertilizer sector up to Rs 21 billion in Budget FY09 due to phenomenal rise in global fertilizer prices particularly phosphates, The Nation learnt on Monday. The proposal of eliminating General Sales Tax on DAP is also under consideration of government to support the agri-sector and provide affordable inputs to farmers. Earlier, the ministry of food, agriculture & livestock (Minfal) proposed the government to raise subsidy to Rs 22.5 billion however, for upcoming budget, the government may revise the fertilizers subsidiary target between Rs 20 and Rs 21 billion in line with offtake of 1.1mn tons DAP and import of approx. 350,000 tons urea. It is pertinent to mention here that in the last budget, the government allocated Rs13.5 billion subsidy for the fertilizers. Meanwhile, the government may announce elimination of GST on DAP. Currently, GST on DAP stands at Rs34.6 per 50kg bag or Rs691.5 per ton (calculated as 15% of Rs 4,610 DAP deemed price per ton). According to the sector experts, the decent agriculture growth, supplemented by sufficient agri loans as well as increase in subsidy, would ultimately lead to more demand for fertilizers. Core earnings of local fertilizer producers are expected to benefit from likely increase in fertilizer prices. Moreover, fertilizer companies are also expected to register considerable trading gains through timely import of DAP in the face of its rising international prices. Experts believe government would maintain its focus on the agriculture sector due to the fact that it contributes about 21% to the total GDP of Pakistan. The demand supply gap in urea is expected to continue till the commissioning of Engro's new 1.3 million tons urea plant. The total agricultural growth in FY09 is expected at 1.8-2.0% as against a target of 4.8% set in Budget FY08. The expected decline will come about due to decline in major crops such as wheat (down by 6%) and cotton (down by 12%) with somewhat mitigation due to increase in livestock. The government is likely to set a growth target of 4.8%-5% on the back of rebound in wheat and cotton production, as well as handsome growth in livestock. In 10-month (Jul-Apr) FY08, agri-credit disbursement stood at Rs 157.6 billion, an increase of 35%YoY, as against a full year target of Rs 200 billion. In the absence of any policy, there is no direction regarding regulation of feedstock prices. The last fertilizer policy was announced in 2001 and expired in 2006. The sector may post earnings growth of 19% and 10% in 2008E and 2009F, respectively. The high growth in 2008 is expected on the back increased fertilizer prices, inventory gains on DAP as well as increased production capacity, particularly for FFBL following expansion of its urea and DAP plants.