The Chemical Fertilizer Industry

The chemical fertilizer industry has been very important to Thailand's economic development and will
continue to be in the years to come. Chemical fertilizer has played a vital role in raising agricultural
productivity. Its significance is now even more so in light of the steadily declining area suitable for
agriculture in all regions of the country as well as the increasingly strong competition in the global
market for agricultural goods. In order to improve the standard of quality of farm produce and to
ensure that supply will be able to meet the ever rising demand, chemical fertilizer remains an
indispensable factors of production in agriculture.

A study of chemical fertilizer showed that there is still plenty of room for further growth of this industry
during the next few years. The overall use of chemical fertilizer in Thailand's agricultural sector,
according to the experts, should total around 6 million tons per year. However, the actual use of
chemical fertilizer today is just over 3 million tons per year. But in spite of good future prospect,
Thailand's chemical fertilizer industry still faces many limitations. One is the dependence on imported
raw materials. Volatile rate of exchange has been a serious problem for Thailand's chemical fertilizer
producers who find themselves constantly up against higher production cost and financial liquidity
problem.

Production

Producers of chemical fertilizer, both in liquid form and pellets, basically import raw materials from
abroad to mix with what is called "mixer" to achieve various nutrient formulas that are in demand on
the domestic market. Today there are about 100 firms producing chemical fertilizer in Thailand.
However, only three have production capacity of one million tons or more per year. Two others can
produce between 250,000 and 500,000 tons a year. The rest are small producers.

The three major producers include Thai Central Chemical Public Company Limited with a production
capacity of 1,200,000 tons per year, National Chemical Fertilizer Public Company Limited, 1,000,000
tons per year and Thai Fertilizer Company Limited, 1,000,000 tons per year. The two medium-sized
producers are Rojanakasikij Fertilizer Company Limited with a production capacity of 500,000 tons
per year and Cargill Siam Company Limited, 250,000 tons per year.

Chemical fertilizer produced by these companies comprises mainly the following formulas : 15-15-15,
16-20-0, 16-16-8, 16-8-8 and 13-13-21.

Cost Structure of Chemical Fertilizer

Cost Structure (%) 16-20-0 16-16-8 15-15-15

Raw materials 77.1 77.3 78.4

Other costs 22.9 22.7 21.6

Total 100.0 100.0 100.0

Chemical Fertilizer Use

The decline in land area suitable for agriculture and the deterioration of soil quality in cultivated land
have resulted in a steady increase in the use of chemical fertilizer. According to the figures of the
Office of Agricultural Economics, Thailand's agricultural sector's chemical fertilizer use during the 10-
year period between 1986 and 1995 increased at an average of 10.27 per cent per year. From a total
of 1.4 million tons in 1986, chemical fertilizer use climbed to 2.6 million tons in 1990 and eventually to
3.3 million tons in 1995. For the period between 1996 and 2000, figures were not yet available but it
was estimated that chemical fertilizer use increased from 3.4 million tons in 1996 to 3.48 million tons
in 2000 and eventually will rise to 3.65 million tons in 2003. For this 8-year period, the average rate of
increase is 1.3 per cent per year.

Chemical Fertilizer Market

Thailand's chemical fertilizer market is strongly competitive. Promoting a chemical fertilizer's brand
name is very important because, if a brand name becomes well-known to customers, maintaining the
slice of the market the product has captured can be a lot easier. And it might also be possible to set
product prices higher than those of the competitors.

The chemical fertilizer market is divided into two major segments. One is the private sector market
and the other is the public sector market.

In the private sector market, suppliers can be divided into three groups. The first group is made up of
the importers of chemical fertilizer products. The second group is the mixers who mix imported raw
materials with the fillers. And the third is made up of the agricultural cooperatives. The first group
plays the most important role in supplying chemical fertilizer market. Large firms like the Thai Central
Chemical, the National Fertilizer and the Thai Fertilizer not only import chemical fertilizer products but
also do the mixing of imported raw materials with fillers as well. Chemical fertilizer is then distributed
mostly through distributors and retailers. The rest reach users via formers' associations or agricultural
cooperatives.

In the public sector market, supplying is done by the Marketing Organization for Farmers, the Bank for
Agriculture and Agricultural Cooperatives (BAAC) and the Office of Rubber Growers Aid Fund. The
BAAC handled the biggest share of the business by buying from importers and mixers and then
provide loans to farmers who need funds to buy chemical fertilizer. The Marketing Organization for
Farmers and the Office of Rubber Growers Aid Fund purchase fertilizers by holding auctions.

Prices of chemical fertilizer in both markets are determined largely by import prices (CIF). This is
because all chemical fertilizer in Thailand was either imported or mixed with imported raw materials.
Movements of fertilizer prices generally are in the same direction as the CIF prices. For example,
during the 1996-1999 period, import prices of 21-0-0 formula increased by an average of 1.01 per
cent per year while wholesale prices of 21-0-0 formula on the market in Bangkok rose by an average
of 2.55 per cent per year during the same period. Likewise, between 1996 and 1999, import prices of
46-0-0 formula declined by an average of 7.48 per cent per year while wholesale prices of 46-0-0 on
the Bangkok market dropped by an average of 5.25 per cent per year.

Although there are so many formulas of chemical fertilizer available on the market, eight of them are
most popular among users. Leading the pack is the 15-15-15 formula, followed by the 16-20-0, 46-0-
0, 16-16-8, 21-0-0, 16-8-8, 13-13-21 and 15-7-18 formulas in that order.

The Industry's Problems

Trading fertilizers in Thailand can be quite risky. Among the fertilizer industry's many problems are :-

1) Nearly all chemical fertilizer and raw materials for mixing must be imported. Necessary raw
materials for manufacturing chemical fertilizer cannot be found in Thailand.

2) Prices of raw materials for chemical fertilizer on the world market fluctuate wildly, especially the
three basic ingredients of N-P-K fertilizer -- UREA, DAP or Di Ammonium Phosphate and MOP or
Moriate of Potash.

3) Uncertainly involving the exchange rate has a negative impact on production costs.

4) The volume of chemical fertilizer sold each year depends on the weather and on prices of
agricultural goods.

5) Prices of chemical fertilizer are controlled by the government.

Trends

In spite of its dependence on such external factors as machinery, raw materials and energy,
Thailand's chemical fertilizer industry will remain just as indispensable to the future of economic
development as it has been during the past decades. Thailand is, after all, an agricultural country.
Besides, its agricultural sector's use of fertilizers is still well below the level recommended by experts.
Total chemical fertilizer use is, in fact, just over 3 million tons a year. The experts say the total amount
should be about 6 million tons annually.

For the period between 2001 and 2003, chemical fertilizer use is estimated to increase at an average
of about 2.1 per cent a year. From 3.50 million tons this year, total consumption should go up to 3.55
million tons in 2002 and 3.65 million tons in 2003.

But, while a steady increase in fertilizer use in the near term is virtually certain, it still is essential to
help Thailand's farmers to understand how to increase farm output per unit of input as recommended
by the experts. Marketing strategy designed to help farmers get better prices for what they produce is
also equally important. It is the best way to increase their income, so that they are able to take full
advantage of new technologies in agriculture.