Market and product

Subsidization scheme only feather fertilizer producers’ nest

12:06 AM @ Monday - 01 January, 1900

VietNamNet Bridge – The subsidization in the input material prices forfertilizer production has only benefited producers, while it has caused badconsequences to the agricultural production because it has created a market withunhealthy competition.


Low input material costs brings super-fat profit

Nguyen Tien Thoa, Director of the Price Control Agency, an arm of the Ministryof Finance, said that the State is still subsidizing the most important inputmaterials for fertilizer production, while applying preferential taxes on thefertilizer products made domestically.

The coal for making fertilizer, about 672,000 tons per annum, are being sold atthe prices lower than the market prices. The price of 2b coal, for example, isjust equal to 55 percent of the market price, while the prices of 1a and coaldust just 65 percent and 82 percent, respectively.

As for the gas price, Thoa said, the gas from Nam Con Son mine was sold to thePhu My fertilizer in 2011 at 4.59 dollars per 1 million BTU, which was lowerthan that sold by PM-3 mine, at 7.5 dollars. The price is also much lower thanthe prices applied to other industrial producers, at 10-14 dollars.

“With such preferential prices, the prime costs of domestically made productsmust be much lower than the imports,” Thoa said

The cost price of import products is now about 10,277 dong per kilo. Meanwhile,the cost prices of domestically made urea are 4348 dong per kilo (the productsmade by using gas) and 7860 dong (the products made by using coal).

According to Thoa, if removing the current subsidization mechanism, the costprices of coal-run urea must be 24.25 percent, gas-run urea by 22.32 percent,and phosphate by 20 percent.

According to Nguyen Tien Dung, General Director of Apromaco, the production costof gas-run urea products is just 4.5 million dong per ton. Meanwhile, the ureaimport price is 450 dollars per ton, or 10 million dong.

“The gap between the domestic production cost and the import price is too big,which makes importers unable to compete with domestic producers,” Dung said,adding that only domestic producers and intermediaries can enjoy super farprofits.

Market distorted, farmers suffer

The current subsidization scheme’s purpose is to ensure that farmers can buyfertilizer products at low prices which allow them to get more profits inagricultural production.

However, the problem is that farmers cannot enjoy the low prices, because theproducts from factories need to go through a lot of intermediaries beforereaching farmers.

According to Thoa, except a small number of enterprises which can organize theirdistribution networks, the other enterprises cannot control their networks.

This has pushed the distribution costs up, while farmers who targetedbeneficiaries, cannot enjoy the state’s preferences.

Thoa has called on to remove the current subsidization mechanism, saying that ithas distorted the fertilizer market, puts big difficulties for the suppliers ofinput materials for the fertilizer production. Meanwhile, import companies havebeen facing big difficulties due to the unhealthy competition.

Dung has affirmed that domestic fertilizer producers would still have theproducts at the better prices than the import products, if the subsidizationmechanism is removed. He said that in order to carry products to Vietnam, onewould have to pay high for transport fee and insurance premiums. Meanwhile,Vietnamese enterprises make products and provide the products on the spot;therefore, they do not have to spend such expenses.

Dung believes that the State should support farmers through the farm producecollection prices instead of subsidizing the input material prices.
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