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Analysis of the Advantages and Disadvantages of Adjusting Fertilizer Tariffs Author/Source: Date: 2016-11-07 Clicks: 24 Recently, the media has reported that fertilizer tariffs may be reduced next year, with some types even potentially facing zero tariffs. It can be said that a reduction in fertilizer tariffs is also reasonable. This is because one of the main reasons for taxing fertilizer exports in the past was the various preferential policies available to this industry; now, however, most of those preferential policies have been abolished, and the fertilizer industry has become an ordinary industry, so the previous situation no longer exists. The reduction in tariffs has a very clear positive impact on the fertilizer industry. First, it helps reduce costs and increase efficiency. According to **statistics bureau data, from January to August this year, the main business revenue of the nitrogen fertilizer industry was 147.86 billion yuan, a decrease of 14.7% compared with the previous year** ； The entire industry incurred a net loss of 7.41 billion yuan, which is 14.39 times the loss amount in the same period last year. If the 80 yuan per ton tariff on urea exports is removed, and based on the volume of urea exports in the first 8 months of this year, which was 6.783 million tons, this would generate an additional profit of 543 million yuan for enterprises. For nitrogen fertilizer companies that are currently suffering heavy losses, this represents a real boon. Similarly, if the 100-yuan tariff on the export of monoammonium phosphate and diammonium phosphate is removed, based on exports of 1.212 million tons of monoammonium phosphate and 3.593 million tons of diammonium phosphate in the first eight months of this year, this will generate an additional profit of 481 million yuan for companies that produce phosphatic ammonium compounds. Therefore, fertilizer companies are eagerly awaiting the introduction of a zero-tariff policy for exports. Second, it is beneficial for fertilizer exports. Since the beginning of this year, with the abolition of preferential policies for fertilizers, domestic fertilizer production costs have risen, while international fertilizer production costs have fallen. As a result, the competitiveness of fertilizers for export has decreased, leading to obstacles in exports. Customs statistics show that in the first nine months of this year, China exported a total of 19.39 million tons of mineral fertilizers and chemical fertilizers, a decrease of 22.1% on a year-on-year basis. Reducing tariffs helps enhance China’s competitiveness in the international market for fertilizers. However, the negative effects of reducing fertilizer tariffs cannot be ignored either, and they should be viewed in a balanced manner. Lower tariffs will strengthen the connection between the Chinese market and the international market, which has both advantages and disadvantages for the domestic market. If the international fertilizer market is strong and export volumes are high, it is beneficial for the domestic fertilizer market ； If the international market is poor and exports are difficult, tying oneself to the international market is a disaster for the domestic market. This year’s urea tender in India is a typical example. Due to the extremely low international urea prices, in this year’s urea bidding process in India, China did not secure much of the contracts; most of them went to Iranian urea producers with lower costs. Moreover, the bidding prices became a factor that drove down prices in the domestic market. This year, the CIF price for the third Indian tender was only $179.95, which caused domestic market prices to drop by over 100 dollars, reaching new lows. Without the disruption caused by the Indian urea tender, domestic urea prices would not be so low. Lower tariffs could also lead to lower prices for imported fertilizers. China is the world’s largest producer and exporter of fertilizers. In recent years, China’s fertilizer exports have increased significantly, which caused international fertilizer producers to panic and lower their prices in order to compete with Chinese products. International fertilizer manufacturers have low production costs and are not afraid of price wars. With lower tariffs on fertilizers in China, export costs have decreased, which raises the possibility of lower prices for international fertilizers. Additionally, some market experts have specifically advised against bringing large quantities of chemical fertilizers to the ports in the next two months. Some fertilizer manufacturers and distributors are thinking that since the tariffs on fertilizers will be reduced next year, they can stock up on fertilizers at the ports now, and then export them at lower prices once the new tariffs take effect on January 1st next year. Doing this is very dangerous. Since the international fertilizer market is not optimistic at the moment and is a buyer’s market, if large quantities of fertilizers are accumulated in ports, traders can take advantage of the situation to drive down prices. With prices falling sharply, the losses incurred by companies far exceed the benefits gained from low tariffs, making it uneconomical. Companies should not blindly gather at the port in the absence of orders. As the saying goes, “The goods die once they reach the destination.” ”If the export price is not satisfactory, companies can only export at a low price, or transfer the goods to the domestic market for sale, which incurs additional transportation costs and is not worth it. (Treasure Island)