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In 2004, the government implemented a fertilizer price control policy six times, yet the price of fertilizers still increased by 15.8% year-on-year. The following year, in 2005, the price cap was even stricter than before. However, market reactions showed that fertilizer prices continued to rise sharply. With the introduction of both price increase measures and price control policies, the fertilizer market remained volatile, drawing more public attention. As the tension between market forces and government intervention grew, the price control policy increasingly failed to meet expectations. Most fertilizer producers and farmers, who are the key players in supply and demand, did not benefit as intended. Complaints from both industries and farmers became louder. So, who really opened the "Pandora Box" of fertilizer pricing?
In reality, this "Pandora Box" is a complex mix of various contradictions. The fluctuations in fertilizer prices have exposed these issues and made them more intense over time. With rising costs of coal and other energy sources, limited railway capacity, and increasing transportation costs, balancing the interests of producers, traders, and farmers while keeping fertilizer prices at a reasonable level has become a major challenge for macro-control authorities.
From the perspective of fertilizer production and consumption, the failure of the price control policy can be attributed to several key factors. First, the "departmental coordination" required for policy implementation is hard to achieve. Fertilizer, being a critical agricultural input, involves multiple sectors such as industry, commerce, finance, taxation, railways, and power. Effective coordination among these departments is essential, but in practice, there is often a lack of alignment and communication. For example, policies like preferential tariffs for manufacturers, tax refunds for urea, and subsidies for phosphates are in place, but if any department fails to implement its part effectively, the overall impact is weakened.
Second, the "flexibility of the big market" makes it difficult for the government to exert control. China's fertilizer market is evolving within a more open economic environment. Previously, the state controlled distribution through specific channels, but now, with the restructuring of agricultural enterprises, these traditional channels have weakened. This has made it harder for the government to monitor and regulate prices effectively.
Third, poor information flow has led to blind decision-making by farmers. As primary consumers, farmers often lack knowledge about proper fertilizer use and are not very sensitive to price changes. Unscrupulous traders take advantage of this by spreading false rumors of shortages after policy interventions, artificially inflating fertilizer prices.
Finally, local protectionism disrupts the efficient allocation of resources. Local governments sometimes protect their own phosphorus and sulfur resources, leading to higher raw material costs and, consequently, higher fertilizer prices. In addition, some regions impose access restrictions on certain fertilizers, creating monopolies and causing supply-demand imbalances.
Despite these challenges, the government has not been inactive. It has prevented chaotic competition and accumulated valuable experience in policy-making. If the root causes of policy failures are clearly understood and comprehensive measures are taken to guide the market, it is possible to achieve desired outcomes in the near future. Ultimately, effective regulation must work within the market framework. While complete liberalization may not be feasible for fertilizers due to their special nature, the government needs to find a balanced approach that allows for effective macro-control while adapting to market development.