JAPAN: DECLINE IN FERTILIZER EXPORTS THREATENS LDC SUPPLIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900030011-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 14
• Document Creation Date: December 19, 2016
• Document Release Date: August 17, 2005
• Sequence Number: 11
• Publication Date: June 28, 1974
• Content Type: MF

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Approved For Release 2005/12/14 :CIA-RDP85T00875R001900030011-3
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 Approved For Release
Japan: Decline in Fertilizer Exports Threatens
LDC Supplies
Introduction
1. Shortages and- sharply rising prices of fertilizer,
especially nitrogen, are- causing concern about their
impact on world food production. Fertilizer supplies
already tight before the energy crisis because of
the rapid growth in demand. Since nitrogen fertilizer
production depends on petroleum derivatives, the oil crisis
aggravated the supply problem. Natural gas or petroleum
products the primary raw material used in nearly
90" o .-orld' nitrogen fertilizer production. Developing
countric:-~, ::hick rely heavily on imports, are,faring worst
from tho scarcity and high price of fertilizer. Asian LDCs
in particular, which consume about one-fifth of the world's
nitrogen fertilizer, will be even more hard pressed in
the coming year.
J~t.pan play: a strategic role in the world fertilizer
balance i:,:: the leading nitrogen fertilizer exporter (see
Table 1).!=/ In FY 1972, Japan accounted for ,nearly 20%
e.:portJ about. 4 s of world potash fertilizer imports. The
bulk of J.;j :u 's phosphate fertilizer production is consumed
doriesticc:liv and all of its potash fertilizot ?5 ! ted. --1
-*7 Japan acc,)unts for only 1 to 2% of world phosphate fertilizer
 Approved For Release 2 - 001900030011-3
Leading
Total World Exports
Japan
Us
Netherlands
Belgium
Italy
Canada
West Germany
Romania
Poland
Norway
All Others
All tonnage- data in this report are. given in terms of nitrogen
(N) content.
Table 1
World Exporters of Nitrogen Fertilizer
1971/72 1/
Metric Tons (N) % of Total
6,954,420 100
1,274,400 18.3
935,000 13.4
651,822 9.4
482,463 6.9
442,214 6.4
437,900
369r693 5.,3
348,800 .5.0
319,931 4.6
303,100
1,389,097
June 1972, or FY 1972.
2/
 Approved For Release 290s117/Ia ? (IA-RfPRSTnfR75R001900030011-3
of world exports and its share probably increased in FY 1973.
Urea makes up about 75% of Japanese exports while ammonium
sulphate and ammonium chloride account for the remainder.
Japan, which exports about two-thirds of its output, is
particularly important to the developing countries in
Asia. Indonesia and the. Philippines rely on Japan for 90%
of their imports and 60% of their consumption. Together
with India and with China, the largest buyer, they take
almost 90% of Japan's nitrogen fertilizer exports.
Export Shortfall
3. Japan's exports of nitrogen fertilizer fell 13%,
or 220,000 tons in FY 1974 and a further drop in 1975 is
cer :aiii (see Table 2). 'Production is expected to remain
stagaa;-:1 in the upcoming year while domestic demand will
continue to increase. Indeed, Tokyo is predicting a 15%-20%
decli.-r, in e::port-s, and exporters are cutting back new
commitm !nts by as much as 25%. We believe Tokyo is over-
stating the extent of the decline to assure that domestic
needs are covered. Nonetheless, a 10%, or 150,000 ton drop
in 1974-75 seems probable.
4. Product-ion fell by about 2043 in 1973-74 for a number
of roas.Ons. A series of explosions at petrochemical plants
ind :,-~ i.c?rnts at- urea factories was one factor. The oil
cris,i.s c..-:used sca:~;~ production losses by reducing naphtha
 Approved For Release 2005/12/14: CIA-RDP85T00875R001900030011-3
Table 2
Japan: Supply of Nitrogen Fertilizer
(1,000 MT Nitrogen (N))
Production
Ending
Consumption Expo. Stocks
1969-70
2,131
879
1,236
684
70-71
2,105
866
1,410
513
71-72
2,125
880
1,274
484
72-73
2,454
970
1,680
288
73-74*
2,400
1,020
1,460
208?
74-75*
2,400
1,090
1,310
208
 supplies, the largest feedstock in Japanese urea production.
Although the fertilizer industry was exempt from Tokyo's
energy conservation program, supplies of raw material
inputs for fertilizer, especially ammonium sulphate, were
reduced because of oil-related production bottlenecks in
other industries.
5. The industry is operating near full capacity and
production is not expected to increase in the upcoming
fertilizer year. Prior to 1973 the industry had substantial
over capacity, especially in urea. As a result, investment
has dropped off sharply -- at least by 20% in 1974 -- and
is going mainly into maj.or repairs and pollution control
equipment. Thus, despite strong domestic and foreign
demand, no expansion of capacity is undenwway. In the case
of nc,v cape i.tty probably could not be brought on
stream for about three years. Increasing ammonium sulphate
production will be difficult because of'a sharp slowdown
in the synthetic fiber industry which provides the
caprolactam needed to produce ammonium sulphate.
6. Domestic consumption of nitrogen fertilizer, which
changed very little during the late 1960s, began increasing
fairly sharply in FY 1973 and is expected to continue
 Approved For Release 2005/12/14: CIA-RDP85T00875R001900030011-3
growing at a rapid pace for the next few years. Initially,
Tokyo was predicting a 7% increase in consumption in FY
1975, but recently boosted the estimate to 9%. The rapid
growth in consumption reflects Tokyo's effort to increase
domestic crop yields in order to redace reliance on imported
foodstuffs. Although fertilizer use is not subsidized directly,
farmers receive a substantial price support for fertilizer
intensive crops such as rice, grain and soybeans. In
addition to rising home consumption Tokyo is planning a
substantial increase in stocks during the coming year.
Industry spokesmen on the other hand, have argued current
stocks of about 200,000 tons could be reduced somewhat
without jeopardizing market stability at hand.. Assuming
no change in stocks and a 7% increase in consumption,
fertilizer supplies available for 1975 will amount to
almost 1.3 million tons, a 10% reduction from current
levels.
Export Policy and Practices
7. In Japan, domestic concerns outweigh all. others in
allocating fertilizer supplies, and the government intervenes
in the market to ensure that domestic- requirements. are met
first. Each of the two major interest groups -- farmers end
fertilizer manufacturers -- is .represented by a government
ministry. The Ministry of Agriculture assures that farmers
ppro r e ase - -
 get sufficient supplies- at the lowest possible price, and
the Ministry of International Trade and Industry (MITI)
looks after the interests of the fertilizer manufacturers.
8. When supplies are plentiful, 14ITI administers
production restraints to avoid price cutting competition.
In 1971 and 1972, for example, MITI used administrative
guidance to limit production of ammonium sulphate to halt
the steady decline in prices. When supplies are.tight, the
Ministry of Agriculture and MITI together determine the
amount needed for the domestic market and MITI monitors
exports to be sure domestic demand is met. The monitoring
effort is relatively easy since the industry is dominated
by only about a dozen firms.
9. Currently, in the face of uncertain production
and strong foreign demand, MITI is keeping a tight rein
on exporters. When nitrogen production began
to slip late last year because of shortages of oil-based
feedstocks, MITI urged exporters to doll out ship,nents
piecemeal until the situation clarified. Although the
production slowdown was short-lived, exports have continued
to run behind schedule.
10. MITI is urging exporters to be conservative in
making contracts for the coming year. As a result, contracts
are being negotiated much later and for shorter periods and
smaller amounts than usual. Japan normally sells most of
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its fertilizer on annual contracts, but in view of the
volatility of prices and uncertainty of supply MITI is
insisting that exporters make commitments for no more than
six months and include a provision for renegotiation of
prices. In past years, contract talks began.by February
and the bulk of. exports had been committed by the end of
May. This year, talks with major customers began in late
May and in many cases are not yet concluded.
11. Japan apparently intends to be as equitable as
possible in supplying its. traditional customers. China,
by far the largest buyer, has been notified of a 15-2010
cut in shipments in the coming year. Contracts recently
signed with India and Indonesia for 69,000 tons?of urea
each during the last half of 1974 represent a cut of 25%
from the corresponding period a year ago. Some-countries
which purchase small amounts on a spot basis may be unable
to buy any Japanese fertilizer this year, but Tokyo
apparently is looking out for the interests of countries
such as Sri Lanka and South Vietnam, to which it provides
economic aid.
12. On strictly economic grounds, the Japanese would
prefer to cut shipments to China by a greater margin than
some others. Because they bulk so large as buyers, the
 J..1~,I n,~c ,E I1 mesa = - r ck mod; , ?.~ ?~a~ Z'
Chinese have managed to bargain for lower prices than other
customers. In 1973, for, example, the Chinese paid $66
per ton of urea compared with a $80 average for other
importers. Last January the Chinese agreed to pay $130
per ton for urea delivered during Jan-Jun 1974, while other
Asian countries agreed to pay $140. Despite the price
differential Tokyo is avoiding disproportionate cuts in
shipments to China because it values growing political
and economic ties with Peking. Tokyo is especially concerned
about jeopardizing seemingly good chances for obtaining
greatly increased oil supplies from China by the end of the
decade.
13. The Japanese would like to establish-uniform export
prices in the new fertilizer year, but are not hopeful
in view of China's intrasignece. The Indians have agreed
to pay $215 a ton for urea (product we ght) during July-
December 1974. The Chinese, have thus far refused'to
accept that price and talks have bee--,I temporarily, suspended.
According to Tokyo, $215 a ton for urea is still about
$35 below the price other large exporters are getting.
Implications
14. Even without a shortfall in Japanese exports t
world supplies of nitrogen fertilizer will be tight in
1974/75. A decline in Japan's exports will, of course,
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aggravate the situation and could cause serious problems
for certain Asian countries. Those hardest hit probably
would be Indonesia and the Philippines (see Table 3). Roth
countries anticipate?a substantial rise in import requirements
in FY 1975 and were counting on Japan to cover the bulk of
it. Unless other suppliers make up the difference the drop
in Japanese exports would result in about a 20% shortfall
in planned imports for Indonesia and about 30% for the
Philippines.
15'. India is much less reliant on imports for its
nitrogen fertilizer and Japan provides only about 10% of
Indian consumption. The Je"anese, however, do account for
30% of India's imports. Since India was apparently counting
on Japan for the same shag` in 1.974/75, they would suffer
about a loo shortfall in imports. China probably will be
hurt little by a decline in Japanese exports because
domestic production is increasing rapidly.
16. The Japanese foresee a surplus in the world
nitrogen fertilizer market by the late 1970s. MITI, for ,.
example, estimates that China will be self-sufficient by
1978/79. Manufacturers, thus, are not likely to expand
production without official guarantees of stable demand.
The high degree of pollution caused by the chemical'fertilizer
industry, the uncertainty of raw material supplies, and
other industrial demand for naphtha -- the basic feedstock
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 Japan's Share of Selected Countries'
Imports and Consumption of Nitrogen Fertilizer
1972-73
Imports
Consumption
China
72
30
India
29
11
Indonesia
51
42
Philippines
NA
75
Percent
1973-74
Imports Consumption
64
21
30
11
92
5a
'88
61
 Approved For Release 2005/12/14': CIA-RDP85T00875R001900030011-3
for fertilizer in Japan -- also serve to discourage
expansion of nitrogen fertilizer production.
CIA/OER