China Fertilizer Industry Overview Economics Essay

mainland chinaw are plant food Industry Overview Economics EssayThe humankindwide fertiliser pray has rebounded in 2010 after attestoring a retardation in FY09 and FY08 and the rec eachplacey is anticipate to sustain till 2014 ground on the world-wide fertiliser application Association (IFA) estimates. The overall plant food demand in FY09/10 rose 3.7% to 162.5Mt as compared to 156.7Mt in FY08/09. The demand for N (nitrogen), P (Phosphorus) and K (Potassium) plant foods in FY09 surged 1.9%, 4.5% and 18% respectively primarily filmn by the Asian followed by the American markets. The overall fertiliser demand in FY10/11 is expect to accession 4.8% to 170 Mt and reach 188.3 Mt in 2014/15 driven by the economic recovery and positive(p) sylvan market conditions. The demand for the N, P and K fertilizers are expected to increase 1.9%, 4.5% and 18%, respectively In FY10/11. consultation IFA, RODM interrogation chinawareware fertilizer industry overview chinaware is the colossalst consumer and producer of fertilizers in the world, contributing 31.4% and 29.1% of the global consumption and turnout respectively in FY07 based on the transnational fertilizer association statistics. harmonise to china statistical year book, the soil s fertilizer consumption in FY08 rose 2.6% to 52.4Mt as compared to 51.1mt in 2007 and grew at a CAGR of 3% for the dot 2000-2008. This was mainly due to universe increase in china, growth in coalesce fertilizers and change magnitude issue of essential agriculture. Henan is the study consumer for fertilizers that accounts 11.5% of hit consumption of fertilizer in china followed by the Shandong, Jiangsu and Hubei which contributed 9.1%, 6.5% and 6.3% of overall fertilizer consumption in FY08.Source China statistical yearbook, RODM researchCompound fertilizer industry in chinaCompound fertilizer comprises of at least two nutrients among nitrogen, phosphorus and super C and includes both perfect and inorga nic fertilizers. Based on the china statistical year book, the consumption of step up fertilizer industry take aim enceinte at a CAGR of 6.9% as compared to the 0.3%, 1.3% and 4.7% of Nitrogenous, Phosphate and potassium fertilizers respectively over a period of 1998-2008, indicating the increasing adoption of chemical compound fertilizers by furthermers as compared to the straight fertilizers. Based on PRlog.org, the Chinese compound market dental plate reached CNY 200 billion in FY09 and has intimately 4,500 compound fertilizer producers mainly situated in Shandong, Jiangsu, Hubei and Sichuan etc. The output signal of Chinese compound fertilizers reached around 50 million tons in FY09. The compound fertilizer effect industry increase 39% to CNY 23.60 billion in FY09 as compared to FY08.However, compound fertilizer consumption still accounts for slight than 30% of the list consumption, which is far beneath the 50-80% average in developed countries. This is due to the f act that compound fertilizers are relatively untried in the Chinese market and farmers are only gradually adopting these over the more conventional varieties. The current fertilizer formulations has conformity degree of less than 3% and most of the producers make their formulations based on the economy and stabbing existent prices rather than soil and educate demands. However with the acclivity milieual concerns, developing Chinese farming(a) differentiation and growing demand for spirited end cash crops and organic intellectual nourishments, the farmers are imposing in risque spiritser requirements on compound fertilizers. Hence the demand for high end compound fertilizers, e specially Chinese ternary compound (3 nutrients) fertilizers is expected to drive the overall compound fertilizers growth in the coming years.Source China statistical yearbook, RODM researchOrganic Fertilizer industryWith the rising environmental concerns, declining arable land, agriculture of high end crops, administration throw for organic merchandise and demand for viridity foods, the adoption of organic fertilizer industry in China demand been gaining momentum and is expected to witness rapid growth for the upcoming years. But the organic agriculture industry in china is very low as compared to the developed countries. In 2006, organic compound fertilizer in China accounted for 27% of the total fertilizer consumption, which round half of the 50% is registered in developed countries. However, organic fertilizer consumption in the country is expected to grow at a CAGR of more than 30%, according to industry sources. Also, the government has set the enhanced performance abandoned by these fertilizers which would help them to reach their goals of increasing rural farm take and income opus decreasing water pollution.According to the industry sources, the Chinese green fertilizer industry is highly break with around 2,000 manufacturers with no distinguished players i n the industry. The piddling and large regional players contribute 80% of the market contribution followed by the large regional and International players contributing 9% and 8% of the market share respectively. The small and large regional manufacturers have an exhibit of competitive prices and knowledge of local anaesthetic markets as compared to the International markets. On the flip side, the international manufacturers produce high prime(a) products, good research and development capabilities and players with good financials can mature regional players in a bid to sustain growth and increase their market share. The large national manufacturers have a competitive edge over the small and large regional manufacturers as well as international players in terms of their brand presence and wide distribution network along with providing quality products at competitive prices and having good dread over the markets. To keep in line with the growth and economic conditions, the gre en fertilizer industry in china is expected to witness integrating in the near future.Growth drivers for Organic fertilizer industry wage hike environmental concernsChinese agriculture has been growing rapidly on a limited area with heavy inputs of fertilizers since 1980s. The rates of fertilizers adopted in virtually regions of china are extremely high as compared to the developed countries analogous North America and Europe. The worldwide average fertilizer consumption per hectare in 1997 was 94 kilograms while US average was 111 kg per hectare. But china exceeded both world average and US average and use 271 kg of fertilizer per hectare of cultivated land, based on the industry sources (hafengevergreen.com).According to the industry sources, the pH levels of the soil in 2000-2008 as against 1980s have declined 0.13 while the pH for cash crops declined on an average 0.3. Since china feeds around 22% of the world s population with just 10% of arable land, protecting china s poll uted and artificially fertilized soil remains a major concern to the government. Moreover, the population in china is expected to increase to 800 900 million by 2020, based on the Beijing International Institute for urban center Development which would decrease the arable area for cultivation. Hence decreasing china s arable land and the need to increase the crop product for municipal consumption have led the farmers to adopt high quality fertilizer products. Also with increasing environmental concerns, the government has been load-bearing(a) the issue of organic agriculture for trade and domestic consumption. Accordingly, the demand for the organic fertilizers have been growing as they increase organic matter content in the soil along with the major and minor organic nutrients.Growth in greening of china s foodDuring the determination few years, the demand for the green foods have been increasing on the back of growing concerns of environment and rising disposable income in china. Based on the industry sources, the cultivation of green food has increased from 2.14 million hectares to 10 million hectares while the output surged from 6.3 to 72 million tons over a period of 1997 to 2007.Also based on the Ministry of Agriculture 90% of China s agricultural merchandiseations are eco-food, i.e. either Hazard Free, Green or Organic foods. The merchandise value increased to US$2 Billion in 2006 from $70 Million in 1997. But china s exports have accounted less than 1% of the global organic market and .08% of the locally sold organic market. Although high production costs and prices has been limiting the usage of organic fertilizers in the domestic market, we believe that the government initiatives in the form of subsidies, recent food safety scandals, growing demand for reliable and healthy food in the domestic and international market, pollution concerns and rising disposable income would strongly drive the green fertilizer industry in the near future. The government has been encouraging both exports and imports of organic products and expects to achieve 10% of the organic crop production by 2010.Growth in green food over a decadeSource John Paull, Australian National University, RODM researchdecrease arable area for cultivationChina is the largest agriculture producer in the world with only 15% of the cultivated area. China need to give birth 20% of the world s population and has just 10% of the total arable land in the world. Moreover the arable land has declined at a CAGR of .4% from 133mha to 121.7mha, over the period 1988-2008. To prevent further decline, the government have set the critical mark of arable land to be keep at 120mha by 2020. According to the industry sources, the population in china is expected to increase from 47% to 75% over the next three decades which mounts the pressure of producing increased yield per area to feed the growing population. thence the demand for the organic fertilizers is expected to witnes s rapid growth in the compound fertilizer segment.Source China statistical yearbook, RODM researchChina policies/initiativesSubsidyThe fertilizers market play a key input for the Chinese agricultural sector and hence is one of the main sectors to be turn to by the government to achieve its food sufficiency objective. The fertilizer subsidies in China are mainly for supporting the development of China s agriculture and food security. Hence we believe that most of the gift policies office be continued for the short term. The comprehensive subsidy on burn down and fertilizer for food grain farmers in 2007 surged 120 % to $3.6 billion (RMB 27.6 billion) as compared to the last year. This program was started to partially compensate farmers for price increases in fuel, fertilizer, and other agricultural inputs in 2006. Based on the Ministry of Finance (MOF), the comprehensive subsidy reached at an average of about U.S. $14.5 per farm household in 2007 and the fuel and fertilizer subs idies are estimated to reach RMB 72.01 billion by 2009.The Chinese government gave swan loan interests subsidy from 2004 to those qualified fertilizers distributors who hold the fertilizer storage during the pass season wherein the total volume is about 5-8million mt and the interests subsidy is about RMB300million to RMB500million($43.9 million to $73.3 million ) every(prenominal) year. Also the government gave a direct subsidy of RMB speed of light/mt to both domestic and trade DAP which was around 6.7million mt and about RMB670million subsidy in 2004.The government gave an electricity subsidy for small and large nitrogen fertilizer producers in December 2003 which is around RMB6.3 billion every year. Also the transportation of fertilizer has been subsidized by RMB5.0 billion every year.TariffsThe MOF and NDRC (National Development and Reform Commission) have jointly announced the Notification of Fertilizer Price Formation Mechanism Reform on January 24, 2009. The main bluepri nt of this notification isRemoval of current tariff restriction on domestic fertilizer pricesRemoval of fertilizer price restrictionsImplementing preferential policies for fertilizer productionApplying measures through import and export regulation, reserve control and transportation parameters to take note the fertilizer marketTo improve agricultural subsidies for the industryIncrease monitoring, supervision, and reexamination on market pricingTo make efforts on program constitution and implementationThe State Council Tariff Committee had compel a 100 % special export affair on fertilizer and related material exports during April 20 and September 30, 2008 which affected 32 tariff lines including phosphoric hot, ammonia, nitrogen, phosphate, potash, and compound fertilizer. Based on MOF, the runaway in exports were due to strain in domestic turn in which lead to surge in price as demand began to decrease due to spring planting. Hence the tariff was increased so as to control t he rising prices along with providing plentiful grain harvest for the year. China has evolved from being a net importer of phosphate fertilizer to being a net exporter over the last decade and has been instantly affected the US phosphate fertilizer industry as it used to supply 95% of China s phosphate imports.Pricing make out in chinaChinese fertilizer prices have witnessed heavy excitability over the last decade mainly due to uneven production levels in fertilizers, the government s need to keep sufficient production to meet domestic market demand and rising international fertilizer prices. According to USDA, the market price for nitrogen fertilizer surged from $280 to $405/MT during 2007 and reached a high of $452 during April 2008. This was mainly due to imbalance between low supply and rising demand on the world market. Also the tariff restrictions imposed on Chinese fertilizer producers and the demand for fertilizers to produce biofuels in the linked States, Brazil, and Eur ope has led to the increase in price. However due to the slowdown in the world economy and reluctance of Chinese farmers to pay high prices which were two to three times higher than the prices of early 2007, the price for fertilizer fell drastically to $247 at the end of 2008.VAT policiesThe NPK compound fertilizers, MAP, carbamide and DAP have been on a VAT holiday from 1994 January 1, 1998 July 01, 2005 and January 1, 2008 respectively. China had stop importing urea from 1997 and the government has given 50%-100% VAT yield to the urea exporters before March, 2004. The government stopped the tax refund insurance policy and began to impose export tax to urea and DAP from March 16, 2004. Prior to 2002, the government has given VAT holiday policy to imported phosphoric acid for supporting the players like Sino-Arab Chemical Fertilizer Co. Ltd who were consuming imported PA for phosphate compound fertilizers production. The government gave VAT holiday policy for imported sulfur from May 20, 2008 and most of the imported fertilizers and related raw materials were given very low import custom taxes which are all below 4%.Export/Import initiatives for fertilizersChinese government set new policies on the exported fertilizers during Nov. 14, 2008.To set export base price for the off-season and to reduce the export tariff from 125%185% to 10%110% till December 31, 2009The export tariff for Urea, MAP and DAP would be 110% (35% basic+75% special) during mid-season and 10% during off-season since December 1, 2008The base prices for DAP, MAP and Urea are RMB4000/mt RMB3700/mt and RMB2300/mt respectivelyDuring the off-season, if Urea, DAP and MAP prices are lower than the base prices, the export tariff would be 10%, otherwise the export tariff would be calculated by the formula (1.1-base price/export price) 100)Source IFA, RODM researchThe customs tariff committee of China have cancelled the special export tariffs (50-75%) in Jun-09 on 27 products, that include phosphate thrill (apatite), yellow phosphorus, synthetic ammonia, phosphoric acid, ammonium chloride, triple superphosphate (TSP), sodium nitrate and double nutrients to help local fertilizer manufacturers clear excess armory build-up.Import Tariff Rate QuotaProducts Quota level (000 metric tons) In-quota imports (000 metric tons) State-trading share (%) In-quota MFN tariff rate (%) Out-of-quota MFN tariff rate (%)Urea 3,300 90 4 50NPK 3,450 65 4 50Diammonium phosphate 6,900 65 4 50Source USTR, RODM ResearchThe Chinese government controls exports of major raw material inputs for fertilizers like coking coal which provides competitive edge to Chinese manufacturers and exporters over the foreign manufacturers and exporters in the chemical fertilizer industries. The price of coke in China was around $472/mt, while the global price of coke was $740/mt. Although China produces 336mmt of coke, contributing 60% of the global production, it has an export quota of only 12mmt and an export duty of 40%.