Rising fertiliser price: what is the best solution?

Although fertiliser is in the list of price stabilisation commodities, its selling price has recently been changing day by day, even three times a day

Although fertiliser is in the list of price stabilisation commodities, its selling price has recently been changing day by day, even three times a day. To deal with this problem, it requires not only administrative orders by State authorities but also the balance of supply and demand, said a top official from the Ministry of Industry and Trade in a recent seminar on fertiliser price stabilisation.

According to the Ministry of Industry and Trade, in the first quarter of 2011, besides a rise in output, prices of fertilisers also increased significantly. Specifically, urea fertiliser price climbed 18.3 percent; phosphate, 2.6 percent; NPK, 37.9 percent; and DAP fertiliser, 66.3 percent.

Prices will keep rising

The main reason for the volatility of fertiliser prices since the beginning of this year is heavy reliance on imports. For example, some types of urea fertiliser are imported more than 50 percent; SA and potassium are wholly imported; and 80 percent of DAP fertiliser is made up by foreign sources. As a result, fertiliser prices are largely driven by world movements. Additionally, according to Mr Bui The Chuyen, Head of Business Planning Department of the Vietnam National Chemical Group (Vinachem), prices of lump coal sold to fertiliser producers increased 20 percent from April 1 while prices of dust coal were added 40 percent. Following the rise, prices of coal sold to fertiliser producers are equal 90 percent of market rates. With such large coal consumers like fertiliser manufacturers, prices are no longer preferential. The hike of selling prices of fertilisers is thus unavoidable.

Mr Nguyen Tien Dung, General Director of Agricultural Products Investment Joint Stock Company, said: “Our company has to raise fertiliser prices by VND150,000 per tonne on average. Nonetheless, this rate of rise is not very high in relation with input material prices.” An official from Tan Truong Sinh Trading Joint Stock Company said: At present, China is applying a 110 percent tax rate to hold back export and prioritise domestic demand. As a result, fertiliser prices will continue to be volatile in both price and supply from now until June and July. As a matter of fact, the fertiliser market will witness only upward movement in the near future but the rate of increase is dependent on many factors, Mr Chuyen noted.

In recent directives on market stabilisation, the Ministry of Industry and Trade asked fertiliser producers in the country to reduce costs and limit price hikes during peak periods. But, as fertilisers are largely imported, when there is a rise in price in imports, farmers will have to pay more for the nourishment. There comes out a question that whether administrative orders are enough to stabilise the market?

Proactive balance of supply and demand

Fertilisers are essential goods and subject to price stabilisation mechanism. However, the market stabilisation is formalistically intervened by administrative orders; thus, measures taken are not very effective. Therefore, in order to quickly stabilise the domestic fertiliser market, balancing the supply and demand is crucial. Mr Nguyen Loc An, Deputy Director of Domestic Market Department, which comes under the Ministry of Industry and Trade, said: To be more active in controlling the volatility of fertiliser retail prices on the market and to be more consistent with the so-called market mechanism, balancing the supply and demand is better than other measures. The Ministry of Industry and Trade will propose the Vietnamese Government to issue a regulation that will require fertiliser manufacturers and importers to stockpile a required volume of products to supply the market when there are large fluctuations or imbalance of supply and demand on the market. Companies will receive incentives from the State in the form of preferences of credit, tax, warehousing investment and access to foreign currency sources, etc.

Besides, reorganising the fertiliser distribution system is very important to minimise the price gap from producers to farmers. On that basis, companies need to expand their direct supply networks in order to better control selling prices in their systems and limit unreasonable price hikes. Mr Nguyen Anh Tuan, Deputy Director of Price Management Department under the Ministry of Finance, said that a stable supply and demand relation is the most important element in any situation. The ministry will actively regulate the supply and demand of fertilisers by applying tax policies and import – export policies (like raising export tax, reducing import tariff) or subjecting a suspension of important fertilisers at a certain time. The Price Management Department will also strengthen control of prices constituents by checking fertiliser computing plans and will strictly punish violators of Price Ordinance.

An official from North PetroVietnam Fertilizer and Chemicals Joint Stock Company (PVFCCo North) said: Apart from importing 130,000 – 200,000 tonnes of fertilisers a year, reserving at least 70,000 tonnes, supplying nearly 5 million tonnes of high quality fertilisers and meeting some 40 percent of the domestic market demand, the company will also pledge to keep selling prices stable. He said: “However, to effectively implement price stabilisation regulations, companies alone cannot absolutely determine all fertiliser prices on the market. Therefore, we expect more supports from the State and closer coordination from other companies. Perhaps, the best way to stabilise prices is companies commit reasonable selling prices.” – VCCI

Tags: Vietnam Fertiliser prices, Vietnam fertilizer industry