Another Hurdle for Chemical Fertilizer Firms   

A rumor is going round that the Chinese government will raise the export tariff by 100% for nearly all chemical fertilizers excepting only single super phosphate. If the rumor is true, the export tariff for chemical fertilizers will be 135%. This will be the third time the government has raised the export tariff since 2008. According to a source in the National Development and Reform Commission (NDRC), on April 8th NDRC held a conference about controlling the price of agricultural products and materials used in agriculture. The officials of the price supervision departments in sixteen provinces discussed the price controls on fertilizers. All agreed that the government should take stricter measures to control the price of fertilizer and increase subsidies to farmers who purchase fertilizers. A common suggestion in the conference is that it is not possible to increase the prices of grains, but it is possible to raise the export tariff on fertilizer again. That may be the source of the rumor. In 2007 China exported 5.26 million tons of urea, accounting for around 10% of the total domestic output.
   Ignited by the rumor, the price in the international market rocketed in the past week. Both the current and the rumored policy aim to control the export of chemical fertilizers while prohibiting domestic manufacturers from lifting the selling price in the domestic market so farmers can afford to keep planting even if they make little money from it. The national government has spent RMB431.8 billion helping farmers in 2007, RMB80 billion more than in 2006. Some economists even suggest that the government may stop the subsidy on farming because the per-capita income of farmers reached RMB4 410 in 2007, up 15.4% from 2006. So they asked the government to let the market decide the prices of chemical fertilizers.
   RMB4 140 can really be used to buy one or two tons of urea, an expert working in the agriculture sector commented. In other words, individual farmers may refuse to use chemical fertilizers if they need to spend their income for a whole year to buy one ton of urea with no subsidy.
   But how will domestic manufacturers reply?  Can they apply for subsidies to recover their losses from selling fertilizer at a price so low - nearly half the prices in the international market? No one thought that the government subsidy was a cure-all to solve economic problems.
   On April 16th, CNPC was to receive RMB1.87 billion subsidy for its losses from importing oil products that are sold at a lower price in the domestic market, and Sinopec Group was to get RMB2.51 billion. Of course, the subsidies are in the mode of refunding value added tax for imports - different from subsidies for refining business. Who will benefit from such a subsidy? Will it interrupt the normal trading chain? Perhaps the government has carried out studies in depth but cannot set a better balance yet.

Zhong Weike
April 17th, 2008