Although the marketization reform of China's fertilizer industry has already been placed on the agenda by relevant authorities, with draft proposals being circulated for feedback, the exact impact of these reforms on fertilizer production and agricultural output remains unclear. The official implementation plan is still pending. Currently, the most widely accepted approach is to gradually phase out preferential policies for fertilizer producers—starting with natural gas subsidies, followed by electricity and transportation discounts, and finally eliminating VAT exemptions, while introducing direct subsidies to farmers growing staple crops.
Industry experts have analyzed that implementing this plan could lead to several potential consequences. First, it may cause a significant increase in production costs, which could push some companies out of the market, thereby reducing overall supply capacity. Second, under a market economy, fertilizer prices and availability could become volatile due to external factors such as global market trends and raw material costs. Third, farmers' input costs would rise, potentially affecting food production and lowering their incomes.
Experts note that although China's chemical fertilizer sector is moving toward market-oriented regulation with policy support, certain supportive measures should remain. For example, natural gas concessions are currently the main form of support, while coal-related benefits are minimal. Transport subsidies mainly apply to finished fertilizer products, not raw materials, and tax incentives—such as VAT exemptions for nitrogen fertilizers and duty-free raw materials for compound fertilizers—are not consistently applied in practice. Additionally, import quotas and off-season reserve discounts effectively provide around 50 yuan per ton in interest subsidies.
Despite the wide range of preferential policies, there are significant differences in how they are implemented across different types of fertilizers and companies. Overall, although these benefits have decreased over time with market development, they still amount to approximately 40 billion yuan annually, with the biggest impacts coming from VAT, electricity tariffs, railway freight rates, and planned natural gas pricing.
While technological innovation and industrial restructuring can help mitigate the effects of policy changes, rising fertilizer costs and ex-factory prices are unavoidable. These increases will inevitably affect end consumers—mainly farmers—who may reduce their fertilizer purchases or even abandon grain farming, posing a serious threat to national food security.
The adjustment of fertilizer preferences will have complex and far-reaching effects on the industry. As these changes take effect, market prices will likely rise, and industrial structures and product mixes will undergo significant transformations. To address this, experts recommend a transition period of 3 to 5 years for the fertilizer industry's market reform, allowing companies and agricultural capital markets to gradually adapt and adjust. This phased approach is essential and necessary for a smooth and stable transformation.
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