Import duties for Russian nitrate fertilizer will triple and the prices of fertilizer will increase by 1.5 times

The Ministry of Economic Development and Trade is completing an investigation of imports of Russian nitrate fertilizer to Ukraine. The agency concluded that the existing level of protection of domestic producers of fertilizers is insufficient and proposes to increase import duties and extend their effect for five years, according to the letter sent to Russian companies engaged in the production of fertilizers.

What they fought for

The anti-dumping probe against Russian fertilizers began on May 25, 2013 upon the initiative of chemical companies owned by Dmytro Firtash that produce nitrate fertilizer – Ostchem (Rivneazot, Cherkasy Azot, Azot Severodonetsk Association and Stirol). Over the course of the investigation the Ministry of Economic Development and Trade imposed a 9.76% duty on Dorogobuzh and an 11.91% duty on other Russian companies supplying nitrate fertilizer to Ukraine. Only EuroChem was able to import nitrate fertilizer to Ukraine unobstructed.

That did not satisfy Ostchem, which pressed for extension of duties on Russian nitrate fertilizer last year and their revision this year. Representatives of Firtash’s company are convinced that Russian suppliers are engaged in predatory pricing on the Ukrainian market. Moreover, they are at a disadvantage regarding the price of gas, which is a raw material for the production of fertilizers. In particular, it was said that the cost of fuel for Russian companies does not exceed US $150 per 1,000 cubic m. Ukrainian chemical companies are charged with more than US $400 per 1,000 cubic m of the same fuel.

Proposition

First Deputy Minister of Economic Development and Trade Anatoliy Maksyuta believes that the duty for Dorogobuzh should be increased to 20.51%, which is more than twice. For other companies and Ukraine’s main supplier of nitrate fertilizer EuroChem, the duty should be raised to 36.03% (or more than three times). The agency does not explain the cause of such a difference in the duties. A letter from Maksyuta only mentions that “the level of previously used anti-dumping measures concerning imports of nitrate fertilizers originating in Russia was not sufficient to abolish predatory pricing”.

Up until now such duties have never been imposed on Russian suppliers of fertilizers. Our chemical companies failed to achieve such measures even during the crisis 2009, when the share of Russian nitrate fertilizer in Ukraine reached 35%.

Russians disagree

Director of Agrocenter EuroKhim (a subsidiary in the structure of Russia’s EuroChem) Yevhen Filonov said in a conversation with Capital that he considered the proposed level of duties unreasonable. “At the time of investigation EuroChem submitted to the Ministry of Economic Development and Trade sufficient documentation proving that its nitrate fertilizer was not engaged in predatory pricing on the Ukrainian market. The company sells its nitrate fertilizers at the same prices as Ostchem and in some regions even at higher prices. Consequently, we believe that the 36% duty is unfair. The sheer size of the anti-dumping duty is perplexing – based on the results of the previous investigation the duty was 12%. So, now it seems that the duty was simply multiplied by three. The argument for making such a decision is unclear. The parent company has not decided yet what to do from the legal aspect,” said Filonov.

Last time when the company was dissatisfied with the duty imposed by the Ministry of Economy of Ukraine (in 2008) it filed a lawsuit with the courts and won the case in 2010. This allowed delivery of the product to Ukraine without any charges. Besides, according to Filonov, there is not that much Russian nitrate fertilizer in Ukraine. “Approximate annual shipments over the past two or three years ranged from 200,000 – 300,000 t. The amount of money involved is a maximum US $84 mn,” the director of the Agrocenter EuroKhim calculated. He also estimates that upon imposition of the duty proposed by the ministry, the cost of nitrate fertilizer on the border may exceed UAH 5,300 per t. Agrarians will not buy Russian fertilizer at such prices. For this simple reason, his company plans to stop importing nitrate fertilizer out of principle.

“We will import calcium-ammonium nitrate with lower nitrogen content (27% instead of 34%) and urea-ammonium nitrate (UAN), urea and anhydrous ammonia,” says Filonov.

So far, Ostchem has refused to give specific details in its comments. “The Ministry of Economic Development and Trade, the authority which conducted investigations, issued its results for all interested parties. The decision on the application and renewal of fees must be made by the Interdepartmental Commission. All interested parties are awaiting the decision of the commission. So, at this point it is still too early to give any comments,” said a representative of the company in a conversation with Capital.

Indignant farmers

News about the upcoming tripling of duties on Russian nitrate fertilizer shocked agricultural producers. “In such matters we must be guided by pragmatic calculation, rather than a desire to annoy our neighbors,” said the head of the Agrarian Union of Ukraine Hennadiy Novikov in a conversation with Capital. He believes that at the moment the share of Russian nitrate fertilizer on the Ukrainian market does not exceed 15%.

“The Russian counterpart is slightly knocking down the prices on domestic nitrate fertilizer and eliminating its shortage. I do not believe the presence of Russian nitrate fertilizer in such an amount would hurt our national pride,” said Novikov. He also said that on behalf of his organization he would try to push for lowering of duties, which, in fact, could lead to a halt in deliveries.

If the duty is imposed in August just before the field works in the fall, the cost of a ton of nitrate fertilizer in Ukraine could soar from the current UAH 3,450 to UAH 5,000 and even higher, according to Director of the Infoindustria information company Dmytro Hordiychuk. Based on his calculations, this may lead to a significant underuse of fertilizer not only in the fall, but also in the spring. Moreover, such a rise in price of the most popular fertilizer in Ukraine could become a reason for farmers to give up the sowing of winter crops.