"Administrative Hand" Multi-pronged Regulation of Chemical Fertilizer

With the beginning of the spring plowing this year, fertilizer prices have been leading the way and some places have reached the highest price in six years. The country adopts a variety of administrative measures, and fertilizer prices still make it difficult for farmers to accept. This phenomenon is thought-provoking.

Three major initiatives to protect the spring

First of all, in February 2005, the National Development and Reform Commission fixed fertilizer market prices, safeguarded the use of spring ploughing fertilizers, protected farmers' interests and enthusiasm for growing grain, established a system of off-season commercial reserve for chemical fertilizers, and determined fertilizer storage and storage enterprises through bidding. The National Development and Reform Commission and the People’s Bank of China also issued the “Circular on Issues Concerning the Supply of Funds for Commercial Reserves in the Off-season Season for Chemical Fertilizers in 2004-2005”, which explicitly provided credit support for storage and storage companies to collect and store off-season commercial reserve fertilizers.

Secondly, in terms of controlling domestic demand for export guarantees, China's export tax rebate rate for chemical fertilizers has been reduced from zero on March 16 this year to zero for a one-year period to restrict the export of urea and increase the total supply of domestic urea. But even so, the situation that the supply of fertilizers in various regions is in short supply does not change significantly.

In addition, from the beginning of this spring, the nationwide limit on the price of agricultural resources has started, and many provinces have successively issued corresponding fertilizer price limit policies. From the medium ex-factory price to the wholesale and retail price difference, and then to the retail price of the terminal, it will be clearly defined. However, enterprises still hold preferential policies of the government and enjoy the advantages of coal, electricity, and transportation. Privately, they trade fertilizer at high prices. This shows that the limit order still has weak implementation in certain aspects.

Cost factors are difficult to regulate

In fact, in addition to the contradiction between supply and demand, prices of chemical fertilizers are also largely due to soaring raw materials and production costs. Among them, the market-oriented raw material prices are difficult to control through administrative measures, and electricity and transportation policies to some extent offset the preferential policies of other fertilizer companies.

In April 2005, the National Development and Reform Commission promulgated the provisional management measures for on-grid tariffs, transmission and distribution prices, and sales tariffs, which indicates that China’s electricity prices will implement a new pricing mechanism. The on-grid price will be linked with the price of fuel. After bidding for the Internet, the on-grid price will be subject to a two-part tariff, in which the capacity price is set by the government and the electricity price is formed by market competition. Industry insiders believe that this move will be a real test for the utility of fertilizer companies with low profits.

On the other hand, the shortage of fertilizer capacity is an indisputable fact in all provinces. Even when fertilizers are most sought after, there is still a large amount of fertilizers that cannot be transported in the company's warehouse. In the past, every year, the state required strengthening the transportation of fertilizers during the tight period. However, in the situation of tight transportation capacity and high freight rates this year, no update policy was introduced.

Price contradiction is short-term difficult

In general, this year's chemical fertilizer situation seems to be somewhat similar to last year's situation. It should be said that it is the year in which the administrative measure exerts the greatest influence on the fertilizer market, but in the end, the farmers are still using high-priced fertilizer. In addition, the cost of fertilizers by manufacturers has been steeply rising and their operations have been difficult. Under such circumstances, the state has taken into consideration the difficulties of the enterprises and given them appropriate policy subsidies and incentives, and has started to issue corresponding measures one after another. However, there is a phenomenon that is worth noting: The gradual implementation of the three-agriculture policy has enabled the fertilizer market to usher in its boom cycle. Some companies with more strength are considering new projects and expanding production capacity. Many equipment that has been out of production for many years has begun to be put into use again. The industry believes that China's fertilizer industry is entering a booming period. However, the limited fertilizer market resources are not diverted at normal speeds, causing local resources to be too much or too little, and uneven distribution. This is the basic reason why price differences across regions are high and prices in some regions are high. This situation, which is constrained by various reasons, is still difficult to solve in the short term.

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