According to China's WTO accession commitments, the country was set to open its fertilizer wholesale and retail market to foreign investors by December 11, 2006. This move marked a significant step toward greater market liberalization in the agricultural sector. Alongside this, reforms to the chemical fertilizer distribution system were expected to be introduced within the same year, aiming to accelerate the full marketization of the industry.
Currently, fertilizer prices in China were still under government-guided pricing mechanisms, but the level of marketization had seen considerable improvement. From a broader perspective, the conditions for fully liberalizing fertilizer prices—allowing market forces to determine them—were largely in place. In June 2005, the National Development and Reform Commission proposed the "Measures to Reform and Improve the Regulatory Mechanism of Fertilizer Prices (Draft for Soliciting Opinions)." With support from policymakers, businesses, and industry associations, progress in reforming the fertilizer distribution system was encouraging.
The key aspects of the proposed fertilizer distribution system reform included: first, abolishing the ex-factory price controls on urea by the end of the year, lifting restrictions on fertilizer spreads, increasing prices, and recording the price of potash fertilizer. Second, phasing out preferential policies for fertilizer production, such as eliminating three rounds of preferential tariffs, reducing tariff exemptions while maintaining railway construction fund exemptions, implementing energy price reforms, and removing preferential natural gas pricing for fertilizer producers. The export tax policy remained unchanged, with VAT still exempted for urea production.
Third, after the release of fertilizer prices, the government planned to manage supply through the establishment of off-season reserve systems and the use of import and export taxes to balance supply and demand and stabilize prices. Fourth, a direct subsidy system for farmers was introduced. Fifth, increased government investment aimed at promoting scientific fertilization practices, reducing excessive chemical fertilizer use, and protecting the environment. Sixth, the reform of the fertilizer distribution system sought to establish a more standardized and efficient market order.
According to the National Development and Reform Commission, several challenges still existed in the fertilizer industry’s distribution system. Many circulation companies lacked strong competitiveness and needed to continuously innovate. The overall distribution environment was not ideal, with local protectionism, unnecessary inspections, and artificial barriers hindering the normal flow of products. Additionally, the quality of agrochemical services provided by these enterprises needed improvement. Many companies also failed to prepare adequately for the influx of foreign investment at the end of the year.
With the successful implementation of the fertilizer distribution reform, the full marketization of the fertilizer industry was expected to take shape soon. As a result, the Chinese fertilizer distribution sector would face greater competition but also embrace a more robust and efficient path toward market-oriented development.
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