The price of grain rose late last year after six years of fixed low prices. In Anhui Province, unprocessed rice reached 60.5 yuan (US$7.30) per 50 kilograms last autumn, a 22.5 percent hike from the preceding year. At present, the price has climbed to 80 yuan (US$9.67) per 50 kilograms in Anqing, Anhui Province. Last year's reform of the grain subsidy policy brought direct aid to farmers and encouraged them to grow more crops

But now, the rising cost of production may have a negative impact on farmers' income. Last September, normally a slack season for fertilizer sales, the price of carbamide -- an important concentrated nitrogenous fertilizer -- started to rise. By March, it had hit 1,600 yuan (US$193.30) per ton.

In Anhui Province’s Fangzheng Village, farmer Guan Jifa said the price of a 40-kilogram sack of fertilizer has climbed from 50 yuan (US$6.04) to 68 yuan (US$8.22) in the past few months. As the spring plowing has just started, he thinks the price will go up. Farmer Deng Huapu and his wife just bought four sacks of fertilizer. He too thinks the upward trend will continue.

Farmer Sheng Shouqing said that he got 1.3 yuan (US$0.16) per kilogram of rice last year. According to his calculations, if the price drops below 1.4 yuan (US$0.17) this year he will be operating in the red.

Li Zhishe, vice head of the Gaoqiao Town Agrotechnical Station, said that his unit bought fertilizer from the Tongcheng City Agrotechnical Station at 1,562 yuan (US$188.70) per ton. Adding 40 yuan (US$4.83) in transportation expense, their total cost per sack works out 64.1 yuan (US$7.26). They add a normal profit margin and sell the fertilizer to the farmers for 67 to 68 yuan (US$8.1 – 8.2).

Fertilizer costs are climbing because it costs more to produce now: petroleum, natural gas and coal prices have all gone up. Mining accidents last year reduced coal output, aggravating existing power shortages. As a result, carbamide production has slowed.

Moreover, the high price of carbamide in international markets has led Chinese makers to export much of what they do produce. From last January to November 2003, exports of carbamide hit 2.2 million tons, a whopping 481 percent increase over the previous year. Imports withered 83 percent to just 134,000 tons.

Government policies encouraging farmers to grow more crops meant demand for fertilizer was higher. It is basic economics: higher demand and reduced supply means the farmers’ wallets are taking a hit.

Li Yongdong, of the Anhai Agriculture Production Material Company, said that it is important to increase fertilizer supplies and stabilize the price. He added that China should reduce its fertilizer exports and build a reserve system.

Li pointed out that fertilizer is a production resource, and many countries limit import and export of production resources. Since China’s per capita resources are far below the international average, the nation should take steps to protect them.

Domestic fertilizer reserves are inadequate, said Li. Demand is seasonal and production costs high, and the makers themselves cannot afford the expenditure of maintaining large inventories. In slack seasons, both makers and sellers reduce their stocks. In Anhui Province, February inventories fell to the lowest level in 10 years.

While his company would like to stabilize the market price of fertilizer, the risks associated with maintaining large inventories make this difficult, and at present the government provides no incentives to maintain them. Li suggested that the government nominate several large enterprises to act as fertilizer reserve units, providing them subsidies to maintain the supplies at adequate levels.

(China.org.cn by Feng Yikun, April 19, 2004)