HCMC – The surge in fertilizer prices last year prompted a heated debate in local media but that was a trend in the last few years. On average, the retail price of Dam Phu My urea rose 40% last year, SA fertilizer 36%, DAP 37.5%, and NPK 29% versus 2010.
Higher input costs?
In explanation for the price hike, local fertilizer manufacturers who hold a 50% market share said the main reason was the sharp increase in input costs, including those of power, coal and gas. However, in fact, the fertilizer sector is strongly subsidized by the Government with input material prices kept stable and adjusted up following a schedule, together with much support for input costs.
According to the Price Management Department of the Ministry of Finance, the cost of urea whose production depends on gas is 57% lower than the import cost and 23% for the manufacture of urea using coal.
Nguyen Tien Thoa, head of the department, told a fertilizer industry conference in HCMC late last year that because of its association with agricultural production, especially rice farming, fertilizer manufacturing received subsidies for major materials.
According to the department, if sufficiently calculated, the prices of coal sold for phosphate production would surge by 82% and those for nitrogen would rise 54% versus the current prices offered by Vietnam Coal and Mineral Industries Group.
Under the current Government regulation, the price of coal supplied for big domestic consumers, except for power stations, must be 10% at most lower than the export price.
The department said imported fertilizer is VND10,277 per kilo, while the price (excluding taxes) of local urea produced by using gas and coal is VND4,348 and VND7,860 per kilo, 57% and 23.5% respectively lower than import costs.
Local fertilizer prices always higher than imports
Meanwhile, according to a preliminary calculation by the Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD), gas prices, which account for 73% of the total production cost of Dam Phu My fertilizer, rose 33% last year whereas the product sold at the factory increased 106% in price.
Therefore, production costs should not be blamed for the fertilizer price hike, neither should interest and exchange rate volatility be, since fertilizer importers, who hold a 50% urea market share, are in the same macro-economic conditions but with less incentives.
On the other hand, prices of imported fertilizers are completely dependent on global prices which have risen in recent years, but sell at lower prices on the local market than domestically manufactured products.
Phu My urea fertilizer was sold at an average of VND10,035 per kilo last year, compared to VND9,665 for imported products. The respective prices in 2010 were VND7,172 and VND6,760.
The above analyses show that local fertilizer producers are enjoying huge benefits from the Government’s incentive policies with the target to provide farmers with low-priced fertilizers.
Local manufacturers are blaming the distribution system for higher fertilizer prices in the past few years. However, in 2009 and the first half of 2010, the retail prices of Dam Phu My fertilizer maintained a stable gap of below VND1,000 per kilo with prices of the products sold directly at the factory. Since the fourth quarter of 2010, the factory prices had been marking up until the end of last year’s third quarter. The retail prices were also rising but the price difference widened to VND1,800-2,000 a kilo.
Thus, the price gap has gradually widened since the last quarter of 2010. The entire distribution system, consisting of 4 stages from suppliers, through two levels of sale agents, to retail stores, share the difference of about VND2,000 per kilo while the gap between the input costs and output prices at the factory of Dam Phu My fertilizer in 2011 was some VND3,500-4,000 a kilo, according to estimates.
A simple comparison can identify which stage enjoys the biggest profits, and from which stage of fertilizer production and distribution is the reason behind for the price hike. Therefore, the outlook of stable prices on the fertilizer market in the coming time heavily depends on domestic fertilizer producers.
