Fertilizer production capacity is exceeding market demand in China, pushing market prices lower but also causing challenges for fertilizer producers.
"Fertilizer producers are struggling to survive," said Rongjian Sun, chairman of Beijing Zhongding Company, which produces and distributes fertilizer in China.
"China's fertilizer production capacity is reaching 131 million (metric) tons this year, while the market demand is only 74 million," Sun said, adding that extra productivity brings strong competition among producers and pushes the market price to a very low level.
"On the other hand, China consumes 35% of the world fertilizer production, causing serious soil pollution," said Sun. "Chinese farmers use 434 kilograms of fertilizer for a hectare of land (about 387 pounds per acre), much higher than the world average."
As the soil quality deteriorates, farmers -- especially cash crop farmers -- start to apply more organic fertilizer and less chemical fertilizer to convert the soil.
The conflict between the booming fertilizer industry and shrinking domestic market has become the main story of the fertilizer industry in China.
The Chinese government tried to stimulate the fertilizer industry before and after the year 2000 by subsidizing raw materials and sales and export tax. This policy aimed at producing more fertilizer with a lower price to support crop production. However, the government actions resulted in lost control of China's fertilizer productivity.
BIG CHANGES IN THE BUSINESS
The overcapacity problem didn't happen overnight.
There have been big changes in the Chinese fertilizer business in the last 10 years, according to Weifeng Zhang, a professor at China Agricultural University in Beijing, China. The value of gross output of the fertilizer industry has increased eight-fold since 2003, Zhang said during a presentation at the 2014 Fertilizer Outlook and Technology Conference held last fall in in Savannah, Ga.
"In the last 10 years, the growth rate of fertilizer production was much higher than before, while the domestic agricultural consumption showed a relative slow increase," Zhang said.
Nitrogen fertilizer production increased 6.9% over the last 10 years while potash production increased 25%; however, phosphate fertilizer production decreased 2.4%.
As production jumped for nitrogen and potash, domestic agricultural consumption in China showed a relative slow increase. Nitrogen consumption increased 2% and potash rose 14%. Meanwhile, the demand for phosphate fell 2%.
According to the Ministry of Agriculture, nitrogen fertilizer (N) production capacity was 55 mmt, while the actual production was 45 mmt; phosphate fertilizer (P2O5) production capacity was 24 mmt, while production was 16 mmt.
China is a country that lacks potassium resources. Potash fertilizer production (K2O) is 5 mmt, a little more than half of the market demand.
"For example, China's urea production capacity is 81 million tons annually; but domestic use and export together is only 65 million tons," leaving the rest as a surplus, Sun said.
"While productivity of nitrogen and phosphate fertilizers increase, demand cannot keep the same pace, because farmers realize the margin of fertilizer usage is diminishing," Sun said.
Chinese farmers plant 7% of the world's farming land while using 35% percent of world fertilizer production.
INEFFICIENT USE OF FERTILIZER
Zhang said many Chinese farmers don't fully understand how to use fertilizer efficiently. Over the last 10 years, while they have applied more potash to their soils which were lacking the nutrient, the nation's farmers have over applied nitrogen and phosphorus fertilizers.
This leads to major pollution issues in China. Zhang showed several photos of eutrophication in lakes in the nation and the water was a slimly, green color.
"China needs a 4R program -- the right source, at the right rate, at the right time, at the right place," Zhang said.
The Chinese government is attempting to educate farmers on fertilizer use. Adoption rates of various government services have increased over the last seven years and significantly improved farmers' knowledge and practices with fertilizer, he said. They've also reduced the environmental risk.
Government subsidies, which educate farmers on modern practices, have pushed Chinese farmers to use efficient farming practices and newer farm machinery. Zhang mentioned a subsidy of 30% of the price of newer farm machinery, as well as a subsidy for well and facility construction.
The newer equipment helps reduce the number of seeds, lower the amount of fertilizer applied, and raise the crop yields.
These changes from the government services have also pushed some Chinese farmers to increase the size of their farming operations. Land is shifting from traditional small farms to larger farmers and these larger farmers tend to better educated in how to use fertilizer, he said.
"More and more farmers are using fertilizer and more are trained to know how to use fertilizer," Zhang said.
Zhang said the variation of fertilizer application rates and times among farmers have been reduced over the last five years.
At the same time farmers were taught to be more efficient with fertilizer, fertilizer production kept growing.
When domestic demand could not meet the increasing productivity, fertilizer producers tried to export to international market. "But, when (the) international market is also not good this year, the surplus of production showed up as the lower market price," Sun said.
"Market survey shows that urea price is only 1580 yuan (US $257) per ton, but the production cost is as high as 1800 yuan (US $294) per ton," Sun said.
The worst thing is that the productivity keeps increasing. According to China Nitrogen Industry Association, there are 25 new urea plants under construction now and will be ready for production with a capacity of 16.7 mmt in the next two years.
The market expects China's fertilizer production to be 45 mmt of net nitrogen, 17 mmt of net phosphorus, and 5.5 mmt of net potash.
"Fertilizer producers are struggling to survive," said Rongjian Sun, chairman of Beijing Zhongding Company, which produces and distributes fertilizer in China.
"China's fertilizer production capacity is reaching 131 million (metric) tons this year, while the market demand is only 74 million," Sun said, adding that extra productivity brings strong competition among producers and pushes the market price to a very low level.
"On the other hand, China consumes 35% of the world fertilizer production, causing serious soil pollution," said Sun. "Chinese farmers use 434 kilograms of fertilizer for a hectare of land (about 387 pounds per acre), much higher than the world average."
As the soil quality deteriorates, farmers -- especially cash crop farmers -- start to apply more organic fertilizer and less chemical fertilizer to convert the soil.
The conflict between the booming fertilizer industry and shrinking domestic market has become the main story of the fertilizer industry in China.
The Chinese government tried to stimulate the fertilizer industry before and after the year 2000 by subsidizing raw materials and sales and export tax. This policy aimed at producing more fertilizer with a lower price to support crop production. However, the government actions resulted in lost control of China's fertilizer productivity.
BIG CHANGES IN THE BUSINESS
The overcapacity problem didn't happen overnight.
There have been big changes in the Chinese fertilizer business in the last 10 years, according to Weifeng Zhang, a professor at China Agricultural University in Beijing, China. The value of gross output of the fertilizer industry has increased eight-fold since 2003, Zhang said during a presentation at the 2014 Fertilizer Outlook and Technology Conference held last fall in in Savannah, Ga.
"In the last 10 years, the growth rate of fertilizer production was much higher than before, while the domestic agricultural consumption showed a relative slow increase," Zhang said.
Nitrogen fertilizer production increased 6.9% over the last 10 years while potash production increased 25%; however, phosphate fertilizer production decreased 2.4%.
As production jumped for nitrogen and potash, domestic agricultural consumption in China showed a relative slow increase. Nitrogen consumption increased 2% and potash rose 14%. Meanwhile, the demand for phosphate fell 2%.
According to the Ministry of Agriculture, nitrogen fertilizer (N) production capacity was 55 mmt, while the actual production was 45 mmt; phosphate fertilizer (P2O5) production capacity was 24 mmt, while production was 16 mmt.
China is a country that lacks potassium resources. Potash fertilizer production (K2O) is 5 mmt, a little more than half of the market demand.
"For example, China's urea production capacity is 81 million tons annually; but domestic use and export together is only 65 million tons," leaving the rest as a surplus, Sun said.
"While productivity of nitrogen and phosphate fertilizers increase, demand cannot keep the same pace, because farmers realize the margin of fertilizer usage is diminishing," Sun said.
Chinese farmers plant 7% of the world's farming land while using 35% percent of world fertilizer production.
INEFFICIENT USE OF FERTILIZER
Zhang said many Chinese farmers don't fully understand how to use fertilizer efficiently. Over the last 10 years, while they have applied more potash to their soils which were lacking the nutrient, the nation's farmers have over applied nitrogen and phosphorus fertilizers.
This leads to major pollution issues in China. Zhang showed several photos of eutrophication in lakes in the nation and the water was a slimly, green color.
"China needs a 4R program -- the right source, at the right rate, at the right time, at the right place," Zhang said.
The Chinese government is attempting to educate farmers on fertilizer use. Adoption rates of various government services have increased over the last seven years and significantly improved farmers' knowledge and practices with fertilizer, he said. They've also reduced the environmental risk.
Government subsidies, which educate farmers on modern practices, have pushed Chinese farmers to use efficient farming practices and newer farm machinery. Zhang mentioned a subsidy of 30% of the price of newer farm machinery, as well as a subsidy for well and facility construction.
The newer equipment helps reduce the number of seeds, lower the amount of fertilizer applied, and raise the crop yields.
These changes from the government services have also pushed some Chinese farmers to increase the size of their farming operations. Land is shifting from traditional small farms to larger farmers and these larger farmers tend to better educated in how to use fertilizer, he said.
"More and more farmers are using fertilizer and more are trained to know how to use fertilizer," Zhang said.
Zhang said the variation of fertilizer application rates and times among farmers have been reduced over the last five years.
At the same time farmers were taught to be more efficient with fertilizer, fertilizer production kept growing.
When domestic demand could not meet the increasing productivity, fertilizer producers tried to export to international market. "But, when (the) international market is also not good this year, the surplus of production showed up as the lower market price," Sun said.
"Market survey shows that urea price is only 1580 yuan (US $257) per ton, but the production cost is as high as 1800 yuan (US $294) per ton," Sun said.
The worst thing is that the productivity keeps increasing. According to China Nitrogen Industry Association, there are 25 new urea plants under construction now and will be ready for production with a capacity of 16.7 mmt in the next two years.
The market expects China's fertilizer production to be 45 mmt of net nitrogen, 17 mmt of net phosphorus, and 5.5 mmt of net potash.
Comment