The factors included in the Porter’s five Forces Model as applicable to Fertilizer Industry of Pakistan are follow:
The entry barriers for this industry are high and thus do not allow too much flow into the sector. Setting up a plant requires huge amount of capital and expertise. The return on the investments is collected and more profitable in long-term. That is the reason why we see only a handful of players in the industry.
The main Raw material for the industry is methane, which is obtained from natural gas. It is supplied by the local gas industry to the factories. Gas is used as both feed and fuel stock, thus one can image the significance of this raw material for this industry. Since gas is the main ingredient therefore there is supplier power present. There is no other substitute present for gas. If the gas company/industry is privatized, it will be more dominant over the fertilizer industry.
Farmers are the main buyers in this industry, as they are the ones in need of fertilizers for better productivity of their crops. Thus they end up paying the amount the fertilizers are priced without any negotiations. The main problem facing the industry is that they can increase the price of the end product to meet their costs of production to a certain extent as the farmers are not well-off enough to afford the costly fertilizers. So the industry has a certain price limit.
Fertilizer has no substitute as it is essential for the crops growth and health. If the fertilizers are not used so the farmers suffer loss. Therefore this industry has no threat of a substitute so far. This means that the industry’s product has an advantage and a say of its own in the market.
The industry is well organized and consists of healthy competition. The two major competitors are Engro chemicals and FFBL, they have the highest market shares and market leaders. The big companies in this industry are striving for expansions to increase their output, so to be more competitive. The demand for fertilizers is high, and this encourages a healthy competition.
SWOT ANALYSIS OF PAKISTAN’S FERTILISER INDUSTRY
The SWOT analysis of Pakistan’s Fertilizer Industry is as follows:
|STRENGTHS |WEAKNESSES | | | | | | | |Organized industry. |Few players in the industry. | |Producer dominance. |Plants producing at excess capacity. | |Direct contact with gas industry. |High entry barriers. | |Financially sound players. |Farmer’s purchasing power. | |Agro based economy of Pakistan. | | | | | | | | |OPPORTUNITIES |THREATS | | | | |...