Global Fertilizer Outlook - 5
China May Lower Fertilizer Export Tax
Lin Tan DTN China Correspondent
Wed Dec 9, 2015 06:26 AM CST
BEIJING (DTN) -- Fertilizer production and usage has been affected by government policies for a long time in China. By the end of December, new policy changes are expected regarding the export tax on fertilizer. This time, the government may eliminate or even cancel the export tax.
China's government policy is expected to lead to increased fertilizer exports. (Graphic courtesy of Tim Mizuno, PotashCorp)
"Government is charging a RMB 80 per ton of fertilizer export tax in the year 2015," said Yibin He, marketing manager of Anhui Hongsifang Co., Ltd, one of the largest fertilizer producers in the middle of China. He said that even though that's equivalent to less than U.S. $13 per ton, "it had a big impact on our compatibility in (the) international market in recent situations, as the demand in international market is also lower."
Policies changed dramatically in the past 10 years in China's fertilizer industry to accommodate fertilizer production and consumption. "We used to have (an) export subsidy and export tax rebate before 2004. Those policies stimulated the domestic production capacity," said He, "and then, when international fertilizer prices increased after 2004, government started to charge a high export tax to protect domestic supply; now, the government is looking for a low export tax to promote fertilizer export and let the world market consume our surplus production."
The Chinese fertilizer industry is still one of the industries that have been influenced by "planned economy" in the country. This is because the fertilizers are related to food production, and food price is a sensitive issue for the Chinese government. What the government did was control or subsidize input prices for fertilizer production. In return, fertilizer companies needed to follow the price direction from the government; they sell the fertilizer at a lower price to the farmers so they can produce cheaper agricultural produce.
Because the government policy was favorable for the fertilizer industry for a long time, China's fertilizer production capacity -- especially for nitrogen and phosphate -- increased greatly to a level above the volume of domestic demand. Potash production capacity also increased, but it is still less than demand.
Now Chinese fertilizer companies can produce 123% of their nitrogen demand, 126% of their phosphate demand, but only 50% of their potash demand.
The government can't control international prices, said He. "When fertilizer price increased in (the) world market, such as in the year of 2007-08, producers and trading companies ... (tried) to export more fertilizer to the world market, (and) left the government worried about the domestic supply."
Historically, 2008 was the year with the most policy changes in the fertilizer industry: The export tax changed several times in one year. The export tax increased from 25% to 35%; then there was an added special export tax of 100% in the middle of the year, and then that special export tax jumped to 150% later in the year. This made the total export taxes on fertilizer a prohibiting 185%.
Recently, surplus production capacity became a problem again when demand was weaker in the international and domestic markets because of lower grain prices. The government may lower the export tax to stimulate international demand.
The government already realized the overcapacity of the industry and is also trying some other policies to consolidate fertilizer production.
One of the policy changes is to increase domestic tax in the industry. "Government start to charge a 13% VAT (value-added tax) for fertilizers from October 2015, aiming to cut some high-cost production capacities out of the market," said He.
The government goal is to control the increase of production capacity in the next five years and achieve a zero capacity increase by 2020.
"Changes of tax policy will still be the situation in the future when domestic or international markets change, as long as the government still wants to interfere (with) the market price of agricultural products," said He.
He believes that the lower export tax will help Chinese companies to export fertilizer to international markets next year.
(ES/AG/BAS)
© Copyright 2015 DTN/The Progressive Farmer. All rights reserved.
China May Lower Fertilizer Export Tax
Lin Tan DTN China Correspondent
Wed Dec 9, 2015 06:26 AM CST
BEIJING (DTN) -- Fertilizer production and usage has been affected by government policies for a long time in China. By the end of December, new policy changes are expected regarding the export tax on fertilizer. This time, the government may eliminate or even cancel the export tax.
China's government policy is expected to lead to increased fertilizer exports. (Graphic courtesy of Tim Mizuno, PotashCorp)
"Government is charging a RMB 80 per ton of fertilizer export tax in the year 2015," said Yibin He, marketing manager of Anhui Hongsifang Co., Ltd, one of the largest fertilizer producers in the middle of China. He said that even though that's equivalent to less than U.S. $13 per ton, "it had a big impact on our compatibility in (the) international market in recent situations, as the demand in international market is also lower."
Policies changed dramatically in the past 10 years in China's fertilizer industry to accommodate fertilizer production and consumption. "We used to have (an) export subsidy and export tax rebate before 2004. Those policies stimulated the domestic production capacity," said He, "and then, when international fertilizer prices increased after 2004, government started to charge a high export tax to protect domestic supply; now, the government is looking for a low export tax to promote fertilizer export and let the world market consume our surplus production."
The Chinese fertilizer industry is still one of the industries that have been influenced by "planned economy" in the country. This is because the fertilizers are related to food production, and food price is a sensitive issue for the Chinese government. What the government did was control or subsidize input prices for fertilizer production. In return, fertilizer companies needed to follow the price direction from the government; they sell the fertilizer at a lower price to the farmers so they can produce cheaper agricultural produce.
Because the government policy was favorable for the fertilizer industry for a long time, China's fertilizer production capacity -- especially for nitrogen and phosphate -- increased greatly to a level above the volume of domestic demand. Potash production capacity also increased, but it is still less than demand.
Now Chinese fertilizer companies can produce 123% of their nitrogen demand, 126% of their phosphate demand, but only 50% of their potash demand.
The government can't control international prices, said He. "When fertilizer price increased in (the) world market, such as in the year of 2007-08, producers and trading companies ... (tried) to export more fertilizer to the world market, (and) left the government worried about the domestic supply."
Historically, 2008 was the year with the most policy changes in the fertilizer industry: The export tax changed several times in one year. The export tax increased from 25% to 35%; then there was an added special export tax of 100% in the middle of the year, and then that special export tax jumped to 150% later in the year. This made the total export taxes on fertilizer a prohibiting 185%.
Recently, surplus production capacity became a problem again when demand was weaker in the international and domestic markets because of lower grain prices. The government may lower the export tax to stimulate international demand.
The government already realized the overcapacity of the industry and is also trying some other policies to consolidate fertilizer production.
One of the policy changes is to increase domestic tax in the industry. "Government start to charge a 13% VAT (value-added tax) for fertilizers from October 2015, aiming to cut some high-cost production capacities out of the market," said He.
The government goal is to control the increase of production capacity in the next five years and achieve a zero capacity increase by 2020.
"Changes of tax policy will still be the situation in the future when domestic or international markets change, as long as the government still wants to interfere (with) the market price of agricultural products," said He.
He believes that the lower export tax will help Chinese companies to export fertilizer to international markets next year.
(ES/AG/BAS)
© Copyright 2015 DTN/The Progressive Farmer. All rights reserved.
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