China May Raise Export Tax on Urea to Ensure Domestic Supplies

By William Bi

Aug. 26 (Bloomberg) -- China, the world's biggest grain producer, may soon increase taxes on fertilizer exports to ensure domestic supplies for farmers, a researcher said.

The government told producers of its planned rate hikes in a recent private meeting, said Xu Hongzhi, Beijing-based analyst at Beijing Orient Agribusiness Consultant Ltd. A final decision was delayed because of protests from producers, he said.

China this year raised export duties on fertilizers for the period from April 20 to Sept. 30, helping drive prices for crop nutrients to records globally. The export tax on urea will rise to as high as 185 percent starting September from 135 percent, Scotia Capital Inc. said in a report dated Aug. 25.

``Because global prices are more than double domestic prices, the government is afraid of a possible export flood,'' Xu said. Some producers earn all their profits in the northern hemisphere winter months by exporting, he said.

The Asian nation was the biggest exporter of urea in 2007, accounting for 18 percent of the market, according to the Paris- based International Fertilizer Industry Association. The main importer was India.

Urea, used to grow rice, is the most widely used fertilizer, according to the association. China's domestic urea supply fell 16 percent in the first half of 2008 from a year earlier, Morgan Stanley said Aug. 14.

The Asian nation's urea exports fell to 136,000 metric tons in July from 725,000 tons in April, when an export tax of 135 percent was introduced, Xu said. Still, some farmers couldn't afford to buy the crop nutrient, he said.

The government may relax restrictions on potassium-based fertilizer as exports are smaller, Xu said.

To contact the reporter on this story: William Bi in Beijing at wbi@bloomberg.net