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Does Ukraine need Ukrainian fertilizers?

Author : Olga Pidlisna

12:32, 6 September 2017
Does Ukraine need Ukrainian fertilizers?

Author : Olga Pidlisna

Ukrainian Agrarian Fund, 100% of shares of which belong to the state, recently bought 208 thousand tons of fertilizers from the factories of Ostchem group for the amount of 1.04 billion UAH. Thus, the state actually saved domestic chemical giants from bankruptcy and closure. But this measure is unlikely to solve the problem as a whole, since that both state and private plants are balancing on the verge of closure

12:32, 6 September 2017

Read original article at 112.ua

112 Agency

According to the report of the Ministry of Agrarian Policy, published on August 15, following the results of the first half of 2017, Ukrainian agrarian exports amounted to 8.7 billion dollars, which is by 1.9 billion dollars more than in the same period of last year. In general, in the first half of 2017, a positive foreign trade balance of agricultural products was formed at 6.7 billion dollars, while the share of agricultural exports in the structure of all Ukrainian exports for this period was 42.1%.

Our country is a significant exporter of agricultural products and continues to expand the geography and export volumes of its agricultural production. Prospects, opportunities and demand for this product will only increase. Therefore, the current issue is the situation in the mineral fertilizer market. After all, mineral fertilizers are the main source of the return of nutrients to the soil and the basis of modern intensive technologies and profitable agricultural management in general. Ukraine is lucky - we have our own production of mineral fertilizers. But the situation at the domestic fertilizer market is now disappointing: against the background of the growing volume of agricultural exports, there is a decline in production in this sector.

Data show a significant decrease in Ukrainian exports of carbamide and ammonium nitrate and, as a consequence, decrease in foreign exchange earnings. If we compare 2011 and 2016 (the difference is quite large), foreign currency earnings from carbamide exports decreased 5 times, and from nitrates - 50 times (!).

Let's try to explain the reasons for this decline and the situation in the market of mineral fertilizers in Ukraine. One of the players on it is Odesa Port Plant, which is in state ownership. The company produces ammonium (1241 thousand tons / year) and carbamide (912.5 thousand tons / year). Due a large debt, plant works on natural gas. Since July 11 this year, the enterprise stopped, explaining it by planned repair works, which should end in late August. The plant's products are mainly export oriented because of the peculiarity of its location. Despite unsuccessful attempts to sell the plant last year, the State Property Fund is preparing a new decree on its privatization for November 2017. A new attempt to sell can help to restructure the company's debt. The corresponding bill was submitted to the Verkhovna Rada on July 21, 2017 by a group of deputies. It states that the company will be able to pay off debts to all creditors on a quarterly basis in equal installments within 10 years.

The main player in this market is the OSTCHEM group, which includes 4 plants: Cherkassy "Azot", "Rivneazot", "Severodonetsk Azot" and "Stirol" in Horlivka (the last two since the beginning of military operations in the east of the country do not work) . Cherkassy and Rivne enterprises are currently the only producers of ammonium nitrate in Ukraine (the production capacity of this product of both plants totals more than 1500 thousand tons / year). The main beneficiary of the group of enterprises is Dmytro Firtash.

Chemical plants of the OSTCHEM group stopped work in March this year due to the cessation of gas supplies from Naftogaz Ukraine. OSTCHEM is mired in debt and did not have the means to make a prepayment for fuel. Hostages of the situation were agrarians, who, according to the profile of agrarian associations, made before the spring sowing an advance payment for fertilizers in the amount of about 2 billion UAH, but never received them, while the money "dissolved into the air." Despite this, it was possible to restore the plants in June ("Azot" in Cherkassy) and July ("Rivneazot"). "Agrarian Fund" helped with the issue, it allocated funds for the purchase of natural gas necessary for the production of fertilizers (according to the information provided by PJSC "Agrarian Fund", it is about 1 billion UAH).

But not all the problems regarding OSTCHEM's work are solved. On July 13 of this year, the Antimonopoly Committee of Ukraine announced the abuse of the monopoly position in the mineral fertilizer market by the enterprises of the OSTCHEM group: Azot (Cherkasy), Severodonetsk Azot, Rivneazot, and NF Trading Ukraine (OSTCHEM’s trade unit) in 2014-2015, "which was accomplished by establishing unreasonably inflated prices for fertilizers that would not have been possible if there was significant competition in the market." The final decision regarding this violation is being finalized and will soon be made at a meeting of the AMC.

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Another significant producer of nitrogen fertilizers in the Ukrainian market is Dniproazot (is in the sphere of influence of Igor Kolomoisky). The company produces ammonium and urea (production capacity 520 and 768.8 thousand tons / year, respectively). At a time when all the attention is focused on the problems of the Odesa Port Plant and the OSTCHEM group, Dniproazot has recently reduced its business activity.

So, Ukraine has its own powerful enterprises for the production of mineral fertilizers, while traders in the period of forced downtime of Cherkasy "Azot" and “Rivneazot" since June 2015 had to look for a substitute for domestic products among imported fertilizers. Since that time, the import of carbamide has increased significantly (first from Russia, which has doubled (!) the size of imported products to Ukraine during this period, then from Belarus, and precedents of carbamide import from EU countries appear) to replace Ukrainian ammonium nitrate in the domestic market .

The production capacities of all domestic enterprises for the production of nitrogen fertilizers are sufficient to cover domestic needs and even make serious competition in the world fertilizer market. In Ukraine, instead of satisfying domestic demand for domestic nitrogen fertilizers, its own chemical industry is gradually being destroyed. And the price of this issue is the decreasing of exports, as a consequence - the shortfall in the revenues of the currency and the economic recession, the loss of jobs by thousands of people, the increase in the import of nitrogen fertilizers from the aggressor country, the decline in business activity and the problematic sowing. Ukraine, with its international agrarian specialization, needs to balance the situation around the factories for the production of mineral fertilizers. To gradually bring them out of the crisis, we propose a series of measures that would facilitate this.

If OSTCHEM would be recognized as a monopolist, the state needs to take a number of necessary steps to limit and further monitor the activities of this group. It can be a classic action - to oblige the monopolist to sell part of its assets, that is, to force to shatter.

The next step may be to diversify the market. It is necessary to stimulate the entry of producers from other countries, except Russia into Ukraine (from the neighboring countries of the EU: Poland, Kazakhstan, Belarus, Turkey, France or Great Britain). In the near future, the arrival of products from Turkmenistan is possible, since Russian Railways has introduced a 30-percent discount on fertilizer transit from August 1, 2017, provided that the price levels can cover the cost and duration of delivery.

The opening of the market for all producers will contribute to price competition. But the domestic chemical industry cannot withstand such an onslaught from other countries, where the gas from which the products are manufactured is much cheaper. Therefore, state support for the competitiveness of Ukrainian fertilizer producers is necessary. For example, in the EU countries, the threshold for the import of mineral fertilizers is 30 per cent, and 70 per cent of the market is occupied by European producers, whereas in Ukraine the situation has developed in the opposite way (according to the results of the current spring planting, the import of nitrogen fertilizers amounted to 55% of the total volume). Therefore, another way out of the situation is to set quotas for the import of mineral fertilizers in our country.

To protect the domestic market of Ukraine from low-quality imports, it is necessary to adopt the UKRREACH (Registration, Evaluation and Authorisation of Chemicals) - an analogue of the EU Regulation (Regulation (EC) No 1907/2006) - a strategic legislation in the regulation of chemicals that effectively operates in Europe. This will help to legitimize the internal chemical market in Ukraine and control the quality of products.

The perspective "niche" for Ukraine in the world market is to be developed exactly as an agrarian country, in the future to increase the volume of agricultural exports. And the developed own production of mineral fertilizers, which rhythmically works, is the key to success in this direction. Agrarians should feel the support of the state and be able to confidently plan their activities. And most importantly, what needs to be remembered is that the solution of this situation requires taking a far-sighted and apolitical decision in the interests of our state. The autumn period of fertilization is coming, and the question remains open: Does Ukraine need Ukrainian fertilizers?

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