Overview
Vietnam, the world’s second-biggest rice exporter, still heavily relies on imports to satisfy its demand of fertilizers. Statistics released by the General Statistic Office (GSO) showed that the country imported 4.31 million tonnes of fertilizers in 2009, worth US$ 1.35 billion, increasing by 41.88 percent year- on-year in volume but falling by 8.42 percent year-on-year in value, as companies boosted imports when the global fertilizer price dropped due to economic downturn.

Vietnam’s fertilizer imports continue to grow. In the first two months of this year, Vietnam imported 726 thousand tonnes of fertilizers, worth US$ 223 million. This figured represents an increase of 20.3 percent and 16.6 percent year-on-year in volume and value, respectively.

Of Vietnam’s imported fertilizers last year, urea import volume was estimated at 1.39 million tonnes, worth US$ 404 million, increasing by 96.32 percent year-on-year in volume and 41.26 percent year-on-year in value. China, provided about 1.95 million tonnes of fertilizers, worth approximately US$ 595 million, making it Vietnam’s biggest supplier and accounting for 45 percent of imports. Other major exporters are Russia (395 thousand tonnes, worth US$ 109 million), Korea (348 thousand tonnes, worth US$ 72 million), Philippine (294 thousand ton, worth US$ 115 million), as shown in Figure 1.

With the exception of some phosphate-based products (i.e. SSP, FMP), Vietnam’s local production can meet only half of the country’s demand. Some fertilizers, such as DAP, SA, and potash production, must be imported because Vietnamese companies are currently unable to produce them.

An inspection in 2009 conducted by the Cultivation Department, under the Ministry of Agriculture and Rural Development (MARD), showed that many locally produced fertilizers were below standard. 40 percent of 201 fertilizer samples nationwide failed to meet quality standards. 34 of the fertilizers tested were not properly labeled.

The local fertilizer market, which consists of more than 500 local and international fertilizers producers, is saturated with counterfeit and low quality products. Accordingly, of the 60,000 quality and intellectual property violations discovered last year, 25-30 percent of the cases involved fertilizer.

Vietnam National Chemical Corporation (Vinachem) is the country’s biggest fertilizer producer. Currently, Vinachem has 10 subsidized companies, 16 joint stock companies, 4 enterprises and 12 foreign joint ventures with China, the US, Japan, the Netherlands, Korea, and ASEAN countries in the fields of fertilizer, pesticide, detergent, rubber products, paint and petrochemicals. Vietnam General Corporation of Agricul- tural Materials (Vigecam), which is responsible for stabilizing fertilizer prices nationwide, is now the fertilizer importer with the largest state fund capital (approximately US$ 60 million). According to Bui Tat Tiep, deputy head of the Planning Department of MARD, his unit has been speeding up the priva- tization process of state-owned enterprises like Vigecam to help them run more efficiently and effectively in the time to come.

Agricultural situation
As a key agricultural input, fertilizer has a very close correlation to the fundamentals of agricultural production, especially paddy, in Vietnam.

According to MARD, the land used for paddy in 2009 was estimated at 7,440 thousand ha, increasing by 0.5 percent year-on-year. Of which, the winter/spring crop accounted for 3,060.7 ha (a 1.6 percent increase), the summer/autumn crop
2,358.3 ha (a 0.4 percent decrease), and the winter crop 2,021.1 ha (a 0.13 percent increase). An estimated 1,086 ha were used for maize, a decrease of 4.7 percent from the previous year. Vietnam produced an 43.3 million tonnes of grains in 2009, with production growing by 24.4 thousand tonnes as compared to 2008 (approximately 0.1 percent). Of this figure, rice production was estimated at 38.9 million tonnes, increasing by 165.7 thousand tonnes (0.4 percent). Maize production was estimated at 4.4 million tonnes, falling by 141.3 thousand tonnes (3.1 percent).

The cultivated area for some perennial plants, such as tea, grew in 2009 by 2,600 ha to 128.1 thousand ha. Coffee, rubber, and pepper also had increases in their cultivated areas as compared to 2008, with increases of 6,100 ha to 537 thousand ha, 42,800 ha to 674.2 thousand ha, and 600 ha to 50.5 thousand ha respectively. Accordingly, production also increased. Tea-bud production grew by 7 percent; while its cultivated area increased 2.7 percent, yield rose 4.2 percent. Yield also increased for rubber and pepper. Vietnam produced 723.7 thousand tonnes of rubber, an increase of 9.7 percent with yield rising 3.8 percent. The yield for pepper rose 2.6 percent; combined with an increase in cultivate area, pepper production rose by 7.2 percent from the previous year to 105.6 thousand tonnes.

Rice exports in 2009 recorded the highest volume ever known of 5.8 million tonnes, worth US$2.6 billion, increasing by 22.67 percent year-on-year in volume but decreasing by 10.34 percent year-on-year in value. Vietnam exported an estimated US$ 7.8 billion of agricultural products, representing a 10.88 percent decrease in value from 2008, and an estimated US$ 2.74 billion of forestry products, a 10.94 percent decrease in value from the previous year.

Despite difficult circumstances, including plant epidemics and climate change, rice output and exports maintained a significant growth. This year, rice production is expected to face many additional challenges. Some countries quickly removed their grain export restrictions, which contributed to an accelera- tion of the crop price decline. At the moment, prices are back to levels observed one to two years ago. Downward pressure might persist for a few months. However, in the case of bad prospects for the 2010 harvest, futures could rebound very quickly as world inventories are still very low. Consequently, farmers need to continue increasing productivity and the quality of their crops.

Fertilizer supply and demand in Vietnam
On the demand side, fertilizer consumption in Vietnam has risen sharply in recent years as strong agricultural commodity prices and strong support policies to agriculture give farmers more incentives to gain greater profit by more production and higher yield.

According to Vietnam Fertilizer Association (VFA), Vietnam needs about 8.9 million tonnes of fertilizers this year, almost double the volume used five years ago. Last year, the country consumed 8.3 million tonnes of fertilizers.

Rice production uses the highest application of fertilizers. Of the three yearly crops, that of the winter/spring season is the largest, when the use of fertilizers is always higher than during the other seasons. Geographically, the Mekong River Delta and southeastern region, accounting for 65.4 percent of total land used for agricultural production, is Vietnam’s biggest fertilizer market.

Because agricultural products are produced mainly for export in the south, farmers tend to focus on quality and choose fertilizers with strong brand names. In the north, by contrast, farmers have less interest in quality, making pricing the most competitive criteria in selecting fertilizers. Consequently, counterfeit and low quality fertilizers are more popular in the north than in the south.

In the context of fast-evolving crop and fertilizer prices, farmers tend to be cautious about application rates, particu- larly for phosphate and potash in areas where soils contain appropriate levels of these two nutrients. Moreover, farmers are reluctant to invest in inputs when there is great uncertainty about the price they will be paid for their harvest.
On the supply side, Vietnam’s fertilizer market has experienced a period of great volatility, when fertilizer prices fluctuated dramatically. Fertilizer prices doubled, and in some cases even tripled, over the past year. The fertilizer price increased due the following reasons:

• The dollar price increase prompted importers to raise sale prices in VND, which depreciated 8.27 percent year-on-year on average as compared to the US dollar
• Local producers speculated on products with a hope to push the price up
• Farmers rushed to purchase fertilizers to prepare for their crops, fearing that the prices would go up even further. Nguyen Tien Thoa, head of the Price Management Unit under Ministry of Finance (MOF), said that the government would focus on controlling fertilizer prices in a bid to assist the country’s farmers. Accordingly, fertilizers producers would have to notify authorities of prices on new products before they were launched; a price cap would be applied at sensitive times, and stern measures, including fining or revoking business licenses against big producers found colluding to set market prices, would be taken. Additionally, fertilizer companies must obtain quotas from MOIT if they wish to re-export fertilizers.

Vietnam is expected to produce an estimated 5.6 million tonnes of fertilizers in 2010, including 945.5 thousand tonnes of urea, 1.7 million tonnes phosphate-based products, 2.7 million tonnes of NPKs, and 260 thousand tonnes of DAP. To meet projected demand, import volume is estimated at 3.3 million tonnes of fertilizers.
Nearly 40 percent of the fertilizer supply in Vietnam comes from imports. In further, the local production can only provide some certain fertilizer products, including:
• Nitrogen-based products: there are the Phu My and Ha Bac nitrogenous fertilizer plants with an annual capacity of
740 thousand tonnes and 175 thousand tonnes respectively that can turn out 900 thousand tonnes of urea, meeting ap- proximately half of the country’s demand every year. After the Ca Mau and Ninh Binh nitrogenous fertilizer plants start operation, total output will soar 2.2 million tonnes.
• Phosphate-based products: producers include Lam Thao Fertilizer and Chemicals JSC (capacity of 880 thousand tonnes per annum), Long Thanh Super Phosphate Company (capacity of 180 thousand tonnes per annum), Ninh Binh Phosphate Fertilizer JSC (capacity of 300 thousand tonnes per annum), and Van Dien Fused Magnesium Phosphate Company (capacity of 300 thousand tonnes); together they can almost satisfy domestic demand.
• NPKs: there are a number of producers, with total production estimated at 2.5 million tonnes per annum. In the south, compound fertilizer production is mostly in the form of NPKs but does include some NPs such as 16-20-0, 20-20-0, and 20-15-0, while in the north, NKs are more popular. Some producers have started exporting fertilizers to neighboring countries such as Laos, and Cambodia. Though there is some re-exporting of imported fertilizers compound fertilizers are increasingly being made in Vietnam.
In addition, Vietnam is the largest market for DAP in Southeast Asia. Accordingly, the country imports about 700 thousand tonnes DAP for both direct application and as a raw material in NPK production every year. DAP is primarily used in the south, while consumption in the north is estimated to be less than 50 thousand tonnes per annum.

Last year, Hai Phong DAP Fertilizer Plant produced 150-160 thousand tonnes of DAP. The 330,000 tonnes per annum DAP plant officially started operation in April 2009. tThere is clearly not sufficient phosphate processing capacity in Vietnam to meet the demand for this plant and the existing 1.3 million tonnes per annum phosphate production in Vietnam (SSP and FMP). Moreover, rail capacity from the apatite mine at Lao Cai, near the Chinese border, must also be expanded. Though both rock processing and rail capacity have been increased, they seem insufficient to enable the DAP plant to approach full production capacity in 2010. Additionally, the plant must compete with huge DAP imports from China. There are some signs that demand for higher analysis NPKs is growing in the north. If this continues and the pattern of usage falls more into line with what we see in the south, it will have a significant impact on demand for DAP.