Daily analyst comments

Vedomosti has reported that the Agriculture Ministry, the Industry and Trade Ministry, the Russian Association of Fertilizer Producers and the Russian Agro-Industrial Union on September 30 failed to sign an agreement on the regulation of mineral fertilizer prices for Russian farmers, to be in effect from 2008 to 2012. On the eve of the signing ceremony, the Agriculture Ministry attempted to drastically amend the draft document, but that was opposed by mineral fertilizer producers.

In late August, Russian First Deputy Prime Minister Viktor Zubkov stated that the government had considered boosting the export duties on various types of mineral fertilizers by 2x to 3x, unless their producers agreed with farmers on affordable prices. The government has given the producers and the Agriculture Ministry until mid-October to come up with a draft agreement on a formula for the calculation of mineral fertilizer prices for the period up to 2012.

The original version called for the use of a three-month weighted average export price as the basis for domestic contracts. The discount on the domestic prices in 2009 was to be fixed at 16% for nitrogenous and compound fertilizers, 20% for phosphorous fertilizer and 40% for potash fertilizer. By 2012, the domestic and export prices were to be leveled off, with a 30% price discount still to be retained for potash fertilizers. Instead, the Agriculture Ministry suggested fixing the domestic prices at their current levels and working out a scale for their annual increase. Making matters worse, the issue of setting prices on raw materials for fertilizer production has also remained unresolved.

We are neutral about the outcome of the negotiations. Talks between the producers and the government are still underway. In the meantime, we should note that the original scheme is more suitable for mineral fertilizer producers, since any discount to the export prices would significantly widen should the domestic prices be fixed. At any rate, we expect Russian mineral fertilizer producers to eventually make concessions to the government, agreeing to a temporary (until 2012) decrease in domestic prices in order to retain their much more lucrative export shipments (about 80% of Russia’s total mineral fertilizer output is now exported). Therefore, it is quite likely that the export duties will not be raised.