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In 2004, the government introduced six rounds of fertilizer price control policies, yet fertilizer prices still surged by 15.8% year-on-year. The following year, in 2005, the price control measures were even more stringent than before. However, market responses remained unsatisfactory, as fertilizer prices continued to rise sharply. Alongside these fluctuating policies, the fertilizer market remained unstable, drawing increasing public concern. As the struggle between market forces and policy intervention intensified, the effectiveness of price controls gradually diminished. Most fertilizer producers and farmers—key players in the supply and demand chain—failed to benefit from these measures. Both enterprises and farmers voiced their frustrations, raising a critical question: who truly opened the "Pandora's Box" of fertilizer price volatility?
In reality, this "Pandora’s Box" is a complex mix of contradictions. The ongoing fluctuations in fertilizer prices have exposed deep-seated issues, intensifying them over time. With rising costs for coal and other energy resources, limited railway capacity, and higher transportation fees, balancing the interests of producers, distributors, and farmers while keeping fertilizer prices at a reasonable level has become a major challenge for macroeconomic regulators.
From the perspective of both production and consumption, the failure of fertilizer price controls stems from several key factors:
First, the “departmental coordination†required for effective policy implementation is extremely difficult. Fertilizers are unique in that they are essential for food production, and their pricing involves multiple sectors including industry, commerce, finance, taxation, railways, and power. Achieving seamless coordination among these departments is a complex system task. While the government has introduced various supportive measures such as preferential tariffs for fertilizer manufacturers, tax rebates for urea, subsidies for phosphates, and guaranteed supplies of coal, electricity, and gas, any misalignment or lack of cooperation among departments can severely undermine the overall effectiveness of the policy.
Second, the “flexibility of the big market†makes it hard to exert control. China’s fertilizer market is evolving within a more open economic environment. Previously, under the planned economy, the agricultural resources department was the main channel for distribution and could effectively manage the market. However, with the restructuring of state-owned enterprises, the traditional distribution channels have weakened, making market regulation more challenging.
Third, poor information dissemination has led to irrational farmer behavior. Farmers, as primary consumers, often lack knowledge about fertilization techniques and are not highly sensitive to price changes. Unscrupulous traders take advantage of this by spreading misinformation after policy interventions, creating artificial shortages and driving up prices.
Lastly, local protectionism disrupts market efficiency. Local governments often protect their own phosphorus and sulfur resources, leading to increased raw material costs and, consequently, higher fertilizer prices. Additionally, some regions implement de facto access restrictions on certain fertilizers, creating monopolies and causing supply 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 failure are clearly identified and comprehensive strategies are adopted to guide the market, the desired outcomes can be achieved in due time. Ultimately, effective regulatory policies must align with market dynamics. While full liberalization may not be feasible immediately, especially given the special nature of fertilizers, the government must find a balanced approach that allows for effective macro-control while adapting to the evolving fertilizer market.