Be careful about applying protective measures to fertilizer

The imported Urea and DAP are identified with signs of damage to the domestic producing sector. Photo: Phan Thu.

The Competition Management Department has sent a report to the Ministry of Industry and Trade leaders about the possibility of applying trade protective measures against imported urea and DAP products. The agency has taken specific analysis for urea and DAP that based is on data from the General Department of Customs, and information provided by businesses.

Damage to the domestic producing sector

According to the Competition Management Department, in recent times, the amount of imported urea and DAP has suddenly increased with signs to damage the domestic producing sector.

Specifically, the amount of imported urea in the first 9 months of 2016 reached 443,000 tons, worth $US 103 million, up 60% in volume and 16% in value over the same period of 2015.

With DAP, in 2015 the imported amount reached 978.8 thousand tons, with turnover reached nearly $US 453 million, up 1.9% in volume and increased by 2.2% in turnover compared to 2014. By 2016, the ratio of imported fertilizer in comparison with the production of domestic enterprises increased from 3.18 times in the first 7 months of 2015 to 5.75 times over the same period in 2016 (up 184.6%).

Not only increasing in amount, the Competition Management Department also found clear signs of serious damage to the domestic producing sector.

Currently, there are 4 domestic urea producing enterprises including: 2 Vinachem’s producing enterprises from gas - the Phu My Fertilizer and the Ca Mau Fertilizer with capacity of 800,000 tons per enterprise/year; the Ha Bac Fertilizer and Chemicals Corporation with capacity of 480,000 tons/year, and the Ninh Binh Fertilizer Company Limited with 560,000 tons/year.

For the two urea producing companies from gas, because the selling price (5,600 vnd/kg) is higher than the producing cost (4,500-4,800 vnd/kg), these two businesses remain profitable, but the percentage margin is declining.

The two urea producing companies from coal, with high producing cost (the Ninh Binh Fertilizer at 10,000 vnd/kg, the Ha Bac Fertilizer at 7,600 vnd/kg) have suffered heavily as they are unable to compete with imported goods.

Currently, the Ninh Binh Fertilizer company has stopped producing, while the Ha Bac Fertilizer plant also halted production in the months of August and September due to high inventories. It is expected that in 2016, the production volume of the Ha Bac Fertilizer will be more than 230,000 tons, reaching nearly 50% of its design capacity.

Due to the increase in volume of imports, the DAP fertilizer producing enterprises will suffer considerably as: production volume of DAP fertilizer companies has started to decline from 2013 and the steepest decline will occur in 2016; constantly reduced its selling prices in accordance with the import prices and maintaining the selling prices below production costs, even under the variable costs.

The competition with imported goods led the company to reduce 52.6% of production in the first 7 months of 2016 compared to the same period of last year. The consumption outputs also fell 40.7%, the average selling price decreased to 23.8% compared to the same period in 2015.

Be careful

However, according to the Competition Management Department, by reviewing the overall urea producing sector shows that, the 2 fertilizer producing enterprises from coal are are under severe stress since the producing technology is out of date and the trend of the world is moving to produce fertilizer from gas. Meanwhile, these two companies are now having to buy coal at higher prices than world prices.

Therefore, there are no grounds to identify the main causes leading to serious damage to the imported goods. The urea producing businesses themselves also said that the main causes of difficulties are due to the unreasonable VAT policy and the buying of coal with higher prices than the world market prices.

With DAP items, according to the preliminary analysis data found that apart from difficulties caused by VAT policy, the sudden increase in volume and value of the imported goods is also the cause of damage. Thus, preliminarily estimates are that the main reason for serious damage of the domestic producing sector is caused by imported goods.

Besides, currently, there are only two domestic DAP producing enterprises so that, without the corrective measures for these two businesses, DAP production will hardly exist under competition from imported goods. Since then, Chinese goods have had the ability to dominate the market and push the fertilizer prices higher that the agricultural producing sectors will not be self-sufficient in price.

However, the proposed investigation to apply trade protective measures (if any) will directly impact on farmers and agricultural commodity prices, so that there is a need to be careful in investigating to apply protective measures against the DAP products.

According to the analysis of the Competition Management Department, urea and DAP are being used to fertilize plants and help plants grow. The application of trade protective measures will lead to increase the input costs for the agricultural producing sectors.